UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices, including Zip Code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 10, 2023 the registrant had
TABLE OF CONTENTS
2
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:
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.
3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
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As of |
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March 31, |
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December 31, |
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Assets |
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Current assets |
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Cash, cash equivalents, and restricted cash |
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$ |
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$ |
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Accounts receivable, net |
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Inventory, net |
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Prepaid expenses and other current assets, net |
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Total current assets |
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Noncurrent assets |
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Property and equipment, net |
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Fixed assets held-for-sale |
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Intangible assets, net |
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Indefinite-lived license agreements |
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Right-of-use assets |
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Total noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Lease liabilities, current portion |
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Total current liabilities |
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Lease liabilities |
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Total liabilities |
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Stockholders’ equity |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
4
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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2023 |
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2022 |
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Sales, net |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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General and administrative |
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Impairment of goodwill and long-lived assets |
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Other expense |
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Total general and administrative expenses |
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Research and product development |
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Sales and marketing |
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Advertising |
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Related party marketing agreements |
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Other expense |
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Total sales and marketing expenses |
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Total operating expenses |
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Operating loss |
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Other income (expense) |
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Loss before income taxes |
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Income tax expense |
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Net loss |
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$ |
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$ |
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Net loss per share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
5
LAIRD SUPERFOOD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
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Three Months Ended |
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2023 |
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2022 |
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Net loss |
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$ |
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$ |
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Amounts reclassified from accumulated other comprehensive loss |
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Total other comprehensive income (loss) |
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Comprehensive loss |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
6
LAIRD SUPERFOOD, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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Stockholders’ Equity |
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Common Stock |
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Additional |
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Accumulated Other Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Paid-in Capital |
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Income (Loss) |
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Deficit |
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Total |
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Balances, January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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Restricted stock units issued, net of taxes |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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Balances, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stockholders’ Equity |
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Common Stock |
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Additional |
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Accumulated Other Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Paid-in Capital |
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Income (Loss) |
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Deficit |
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Total |
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Balances, January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Stock option exercises |
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— |
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— |
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Restricted stock units issued, net of taxes |
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— |
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— |
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— |
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Amounts reclassified from accumulated other comprehensive loss |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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Balances, March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
7
LAIRD SUPERFOOD, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash from operating activities: |
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Depreciation and amortization |
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Provision for inventory obsolescence |
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Impairment of goodwill and other long-lived assets |
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Other operating activities, net |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Operating lease liability |
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( |
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Accounts payable |
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Accrued expenses |
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Net cash from operating activities |
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Cash flows from investing activities |
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Proceeds from sale of investment securities available-for-sale |
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Other investing activities, net |
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Net cash from investing activities |
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Cash flows from financing activities |
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Net change in cash and cash equivalents |
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Cash, cash equivalents, and restricted cash, beginning of year |
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Cash, cash equivalents, and restricted cash, end of year |
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$ |
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$ |
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Supplemental disclosures of cash flow information |
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Right-of-use assets obtained in exchange for operating lease liabilities |
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$ |
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$ |
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Supplemental disclosures of non-cash investing activities |
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Receivable from sale of assets held-for-sale included in other current assets at the end of the period |
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$ |
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$ |
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Imputed interest related to operating leases |
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$ |
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$ |
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Amounts reclassified from accumulated other comprehensive loss |
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$ |
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$ |
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Amounts reclassified from property, plant, and equipment to fixed assets held-for-sale |
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$ |
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$ |
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Purchases of equipment included in deposits at the beginning of the period |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
8
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements include the accounts of Laird Superfood, Inc., a Delaware corporation, and its wholly owned subsidiary, Picky Bars, LLC, (collectively, the “Company”, “Laird Superfood”, “we”, or "our").
Nature of Operations
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated, plant-based and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, harvest snacks and other food items, and functional roasted and instant coffees, teas and hot chocolate. The Company was founded in 2015.
Basis of Accounting
The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and rules and regulations of the Securities and Exchange Commission (“SEC”). Operating results include the three months ended March 31, 2023 and 2022. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements.
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited consolidated condensed financial statements.
Unaudited Interim Consolidated Condensed Financial Information
In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of 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 consolidated condensed balance sheet as of December 31, 2022 was derived from annual consolidated financial statements audited by Moss Adams, independent public accountants. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2023. The accompanying unaudited consolidated condensed financial statements and related financial information should be read in conjunction with the Company's fiscal year 2022 Form 10-K filed with the SEC on March 16, 2023.
Use of Estimates
The preparation of the unaudited consolidated condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results. The most significant estimates and judgments include those related to a business combination, allowances for doubtful accounts and returns, inventory obsolescence, goodwill, intangible assets, valuation allowance for deferred taxes, reserves on prepaid expenses, the discount rates used in determining right of use assets and related lease liabilities, valuation of inventory, and fair value of stock-based compensation.
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated in our accompanying unaudited consolidated condensed financial statements.
Segment reporting
The Company currently has one operating segment. In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management reviews financial information presented on a consolidated basis for purposes of allocating 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 12 for additional information regarding sales by platform within the Company’s single segment.
9
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash are highly liquid instruments with an original maturity of three months or less when purchased. For the purposes of the 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.
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March 31, |
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December 31, |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents, and restricted cash |
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$ |
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$ |
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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 Danone Manifesto Ventures, PBC, which provided the Company $
Cash equivalents in the amount of $
Cash, cash equivalents, and restricted cash balances that exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurable limits as of March 31, 2023 and December 31, 2022 totaled $
Accounts Receivable, net
Accounts receivable, net consists principally of trade receivables, which are recorded at the invoiced amount, net of allowances for credit loss. Trade receivables do not bear interest. Receivables are considered past due or delinquent according to contract terms. Management closely monitors outstanding balances and writes off accounts receivable as they are determined uncollectible. The primary indicators of the credit quality of our receivables are aging and payment history, and are assessed on a quarterly basis. Our credit loss exposure is concentrated in our accounts receivable portfolio. Our allowance for credit losses is calculated using a loss-rate method based on historical experience and reasonable forecasts. Based on these factors, management determined an allowance for credit loss of $
Inventory
Inventory is stated at the lower of cost or net realizable value, or the value of consideration that can be received upon sale of said product, and approximate costs determined on the first-in first-out basis, and consists primarily of raw materials and packaging and finished goods and include direct labor and allocable overhead.
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March 31, |
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December 31, |
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Raw materials and packaging |
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$ |
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$ |
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Finished goods |
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Total inventory, net |
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$ |
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$ |
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The Company periodically reviews the value of items in inventory and provides write-offs of inventory based on current market assessment, which are charged to cost of goods sold. For the three months ended March 31, 2023, the Company recorded $
As of March 31, 2023 inventory reserves totaled $
As of March 31, 2023 and December 31, 2022, the Company had a total of $
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
10
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Fixed Assets Held-for-Sale
Leases
We categorize leases at their inception as either operating, finance, or short-term leases. Lease agreements effective during the three months ended March 31, 2023 and 2022 cover, or covered, office space, warehouse and distribution space, vehicles, and equipment. All of our long-term leases are operating leases. Operating leases are included in right-of-use assets, current lease liabilities, and long-term lease liabilities in our unaudited consolidated condensed balance sheets.
Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use a secured incremental borrowing rate as the discount rate for present value of lease payments when the rate implicit in the contract is not readily determinable. For operating leases with variable payments dependent upon an index or rate that commenced subsequent to the adoption of ASC 842, Leases, we apply the active index or rate as of the lease commencement date. Variable lease payments not based on an index or rate are not included in the operating lease liability as they cannot be reasonably estimated and are recognized in the period in which the obligation for those payments is incurred. Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included on the unaudited consolidated condensed balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.
We are the lessor in a sublease agreement. This lease is an operating lease and is recognized straight line over the lease term with a related sublease rental asset accounting for abatements and initial direct costs.
Revenue Recognition
The Company recognizes revenue in accordance with the five-step model as prescribed by ASC 606, Revenue from Contracts with Customers, in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the Company satisfies a performance obligation. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue and a refund liability for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time. See Note 12 for additional information regarding revenue recognition.
Cost of Goods Sold
Cost of goods sold includes material, 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.
Shipping and Handling
Costs of shipping and handling related to sales revenue are included in cost of goods sold. Shipping and handling costs totaled $
11
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Research and Product Development
Amounts spent on research and development activities are expensed as incurred as Research and product development expense on the unaudited consolidated condensed statements of operations. Research and product development expense was $
Advertising
Advertising costs are expensed when incurred. Advertising expenses for the three months ended March 31, 2023 was $
Marketing
Marketing costs are expensed when incurred. Marketing expenses for the three months ended March 31, 2023 were $
Income Taxes
Income taxes provide for the tax effects of transactions reported in the unaudited consolidated condensed financial statements and consist of income taxes currently due and deferred tax assets and liabilities. The Company may also be subject to interest and penalties from taxing authorities on underpayment of income taxes. In such an event, interest and penalties are included in income tax expense. Deferred tax assets and liabilities are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes), stock-based compensation, right of use assets, and net operating losses. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Due to the historical net loss position of the Company, the Company recorded a deferred tax valuation allowance of $
Stock Incentive Plan
The compensation cost relating to share-based payment transactions is recognized in the unaudited consolidated condensed financial statements. The cost is measured based on the grant date fair value of the equity or liability instruments issued. Compensation cost for all employee stock awards is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for all consultant stock awards is calculated and recognized over the consultant’s service period based on the grant date fair value of the equity or liability instruments issued. Upon exercise of stock option awards or vesting of restricted stock units ("RSUs") and market-based stock units ("MSUs"), recipients are issued shares of common stock. Pre-vesting forfeitures result in the reversal of all compensation cost as of the date of termination; post-vesting cancellation does not.
Earnings per Share
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock that were outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all dilutive potential common stock had been issued and is calculated under the treasury stock method. Due to the Company’s net loss, all outstanding stock options, RSUs, and MSUs are anti-dilutive and excluded.
License Agreement – Indefinite Lived Intangible Asset
On August 3, 2015, the Company entered into a license agreement with the Company’s co-founder Laird Hamilton (the “LH License”). The LH License stated 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 unaudited consolidated condensed balance sheets as of March 31, 2023 and December 31, 2022, was valued at $
On May 2, 2018, the Company entered into a license agreement with Gabrielle Reece, who is married to Mr. Hamilton (the “GR License”). Pursuant to the GR License, Ms. Reece granted the Company rights to her name, signature, voice, picture, image, likeness and biographical information commencing on July 1, 2015. This contribution, which is reported on the unaudited consolidated condensed balance sheets as of March 31, 2023 and December 31, 2022, was valued at $
On November 19, 2018, the Company executed a License and Preservation Agreement with Mr. Hamilton and Ms. Reece which superseded the predecessor license agreements with both individuals. The agreement added specific terms related to non-competition and allowable usage of the property under the license. No additional consideration was exchanged in connection with the agreement and the life of the agreement was set at
12
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
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
Definite Lived Intangible Assets, net
Definite lived intangible assets are valued at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for amortization purposes range between
Goodwill
Goodwill represents the excess of purchase price over the assigned fair values of the assets acquired and liabilities assumed in conjunction with a business combination. Goodwill is reviewed for impairment annually as of December 31, or whenever events occur or circumstances change that indicate goodwill may be impaired. In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-not (more than
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, 2023 and 2022, we did
JOBS Act Accounting Election
The Company qualifies as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. An emerging growth company can elect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. Currently, the Company has elected to file as an emerging growth company defined under the JOBS Act, and as such, these unaudited consolidated condensed financial statements may not be comparable to the financial statements of companies that comply with the new or revised accounting pronouncements as of public company effective dates.
13
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Exit and Disposal Costs
The Company follows the guidance in ASC 420, Exit or Disposal Cost Obligations, to record exit and disposal related costs. The Company recorded $
Loss Contingencies
We may be subject to contingencies arising in the ordinary course of business, such as product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations and guarantees and indemnifications. In assessing contingencies related to legal and environmental proceedings that are pending against the Company, or unasserted claims that are probable of being asserted, we record accruals for these contingencies to the extent that we conclude that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, we accrue that amount. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, we accrue the lowest amount in the range. We record anticipated recoveries under existing insurance contracts when recovery is assured.
As of March 31, 2023, $
14
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Going Concern
The unaudited consolidated condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the financial statements, the Company has $million of cash and cash equivalents, and cash used in operations was $
the Company will require additional liquidity to continue its operations over
the next 12 months from the date of this Quarterly Report on Form 10-Q.
At the end of the fourth quarter of 2022, the Company transitioned to a variable cost third-party co-manufacturing business model. As part of this transition, the Company greatly reduced overhead costs while simultaneously improving margins. Cash used in operations in the first quarter of 2023 is inclusive of costs which were incurred in connection with the exit and disposal activities, annual bonus payments, discounts for replacement orders, as well as out of stock items following the product quality issue which resulted in reduced top line revenue for the impacted SKUs in the quarter. In addition, the timing of Club revenue collections resulted in an increase in accounts receivable which were substantially collected in April 2023. These factors exacerbate the cash used in the quarter. Even with the product quality issue impacting net sales and costs of goods sold we have already realized margin improvements to
However, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.
The unaudited consolidated condensed financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs 2018-19 (issued November 2018), 2019-04 (issued April 2019), 2019-05 (issued May 2019), 2019-11 (issued November 2019), 2020-02 (issued February 2020) and 2020-03 (issued March 2020). Topic 326 modifies the measurement and recognition of credit losses for most financial assets and certain other instruments, requiring the use of forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. It also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The standard requires a modified retrospective approach with a cumulative effect adjustment to retained earnings. ASU 2016-13 is effective for the Company’s annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We adopted ASU 2016-13 in the first quarter of 2023. The adoption had no impact on our consolidated condensed financial position, results of operations, or cash flows.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the unaudited consolidated condensed financial statements are available to be issued. The Company has evaluated events and transactions subsequent to March 31, 2023 for potential recognition of disclosure in the unaudited consolidated condensed financial statements. There were no such subsequent events.
15
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
2. Prepaid Expenses and Other Current Assets
The following table presents the components of prepaid expenses and other current assets, as of:
|
|
March 31, |
|
|
December 31, 2022 |
|
||
Prepaid insurance |
|
$ |
|
|
$ |
|
||
Prepaid inventory |
|
|
|
|
|
|
||
Prepaid subscriptions and license fees |
|
|
|
|
|
|
||
Prepaid advertising |
|
|
|
|
|
|
||
Deposits |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Prepaid and other current assets |
|
$ |
|
|
$ |
|
3. Revolving Lines of Credit
On September 2, 2021, the Company entered into a revolving line of credit with Wells Fargo Bank National Association in a principal amount not exceeding $
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 $
A secondary line of credit with East in an amount up to $
East was also granted a right of first refusal on any future equity offerings by the Company to purchase up to
16
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
4. Property and Equipment, net
Property and Equipment, net
Property and equipment, net is comprised of the following as of:
|
|
March 31, |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Depreciation |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Depreciation |
|
|
Net Carrying Amount |
|
||||||
Factory equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Furniture and office equipment |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Leasehold improvements |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
Depreciation expense was $
Assets Classified as Held-for-Sale
In the first quarter of 2022, the Company entered into a vacant land real estate sale agreement for the sale of excess unused lots in Sisters, Oregon for a sales price of $
In the second quarter of 2022, the Company entered into a purchase order agreement for the sale of the intermittent motion form (“IMF”) production line for a sales price of $
In the fourth quarter of 2022, the Company entered into purchase agreements for the sale of the production equipment for a sales price of $
5. Goodwill and Intangible Assets, Net
Goodwill
The carrying amount of goodwill attributed to the acquisition of Picky Bars was $
17
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Intangible Assets, Net
Intangible Assets, net is comprised of the following:
|
|
March 31, |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
||||||
Trade names ( |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Recipes ( |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Social media agreements ( |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Software ( |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Definite-lived intangible assets |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Licensing agreements (indefinite) |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total intangible assets |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The weighted-average useful life of all the Company’s intangible assets is
For the three months ended March 31, 2023, amortization expense was $
Definite life intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Examples include a significant adverse change in the extent or manner in which we use the asset, or an unexpected change in financial performance. When evaluating definite life intangible assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset. The Company considered the above factors when assessing whether the Company’s long-lived assets will be recoverable.
Based on the analysis of the qualitative factors above, management determined that with changes in market conditions and recent developments in the forecasts for e-commerce and wholesale sales of legacy Picky Bars products were triggering events.
The Company performed a qualitative and quantitative analysis, over the period May 1, 2021 through March 31, 2022 and from March 31, 2022 through December 31, 2022 on the Company's estimates of the fair values of acquired customer relationships utilizing the Multiperiod Excess Earnings Method variation of discounted cash-flow model, which exceeded the carrying value, indicating that these assets were impaired. In the three months ended March 31, 2022, the Company recorded of $
The Company performed a qualitative and quantitative analysis, over the period May 1, 2021 through March 31, 2022 and from March 31, 2022 through December 31, 2022, on the Company's estimates of the fair values of acquired trade names utilizing the Relief From Royalty Method variation discounted cash-flow model, which exceeded the carrying value, indicating that these assets were impaired. In the three months ended March 31, 2022, the Company recorded of $
Intangible assets are amortized using the
2023 (excluding the three months ended March 31, 2023) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
6. Leases
Lessee
In accordance with ASC 842, Leases, the Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is
18
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
reasonably assured to exercise.
19
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and liability. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.
The Company leased its warehouse space under a commercial lease with RII Lundgren Mill, LLC, dated March 1, 2018. The lease commenced March 1, 2018 with monthly payments of $
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 $
The Company executed a third lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated October 1, 2021. The lease commenced on October 1, 2021 with monthly payments of $
The Company executed a lease cancellation agreement dated December 12, 2022. Under this agreement, the Company's three leases with RII Lundgren Mill, LLC, were terminated effective January 31, 2023, and agreed to pay $
The Company assumed an operating lease in the acquisition of Picky Bars, LLC on May 3, 2021. The Company pays monthly rent of $
The Company entered into a sublease agreement with Somatic Experiencing Trauma Institute with a commencement date of
The components of lease expense were as follows:
|
|
Three Months Ended |
|
|
Operating leases |
|
|
|
|
Operating lease cost |
|
$ |
|
|
Variable lease cost |
|
|
|
|
Operating lease expense |
|
|
|
|
Short-term lease rent expense |
|
|
|
|
Total rent expense |
|
$ |
|
|
|
Three Months Ended |
|
|
Operating cash flows - operating leases |
|
$ |
|
|
Right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
|
March 31, 2023 |
|
|
Weighted-average remaining lease term – operating leases (in years) |
|
|
|
|
Weighted-average discount rate – operating leases |
|
|
% |
20
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
As of March 31, 2023, future minimum payments during the next five years and thereafter are as follows:
2023 (excluding the three months ended March 31, 2023) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Operating lease liabilities |
|
$ |
|
Lessor
The Company executed a sublease agreement of the Picky Bars, LLC operating lease on March 1, 2022. The lease commenced on April 1, 2022. The sublessee pays monthly rent of $
The components of rental income were as follows:
|
|
Three Months Ended |
|
|
Operating leases |
|
|
|
|
Operating lease income |
|
$ |
|
|
Variable lease income |
|
|
|
|
Total rental income |
|
$ |
|
As of March 31, 2023, future minimum payments to be received during the next five years and thereafter are as follows:
2023 (excluding the three months ended March 31, 2023) |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
7. Deferred Tax Assets and Liabilities
The Company had a tax net loss for the three months ended March 31, 2023 and 2022, and therefore has recorded no assessment of current federal income taxes. The Company is subject to minimum state taxes for various jurisdictions as well as subject to franchise taxes considered income taxes under ASC 740.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, 2022 |
|
||
|
|
|
|
|
|
|
||
Income tax benefit at statutory rates |
|
$ |
|
|
$ |
|
||
Valuation allowance for deferred tax assets |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
( |
) |
|
|
( |
) |
Other benefit, net |
|
|
( |
) |
|
|
( |
) |
Reported income tax expense |
|
$ |
( |
) |
|
$ |
( |
) |
Effective tax rate: |
|
|
% |
|
|
% |
21
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
The Company’s deferred tax assets and liabilities consisted of the following as of:
|
|
March 31, |
|
|
December 31, 2022 |
|
||
Noncurrent deferred tax assets: |
|
|
|
|
|
|
||
Net operating loss carryforwards |
|
$ |
|
|
$ |
|
||
Intangible assets |
|
|
|
|
|
|
||
Property and equipment |
|
|
|
|
|
|
||
Research and development credits |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Right of use asset |
|
|
|
|
|
|
||
Bad debt allowance |
|
|
|
|
|
|
||
Charitable contributions |
|
|
|
|
|
|
||
Unexercised options |
|
|
|
|
|
|
||
Capitalized research and development costs |
|
|
|
|
|
|
||
Total noncurrent deferred tax assets |
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Total net noncurrent deferred tax liabilities |
|
$ |
|
|
$ |
|
The Company assesses its deferred tax assets and liabilities to determine if it is more likely than not that they will be realized; if not, a valuation allowance is required to be recorded. As of March 31, 2023, the Company did not provide a current or deferred U.S. federal or state income tax provision or benefit for any of the periods presented because the Company has reported cumulative losses since inception. Management has determined that it was not more likely than not that the deferred tax assets would be realized, thus a full valuation allowance was recorded against the deferred tax assets. The Company may reduce the valuation allowance against definite-lived deferred tax assets at such a time when it becomes more likely than not that the definite-lived deferred tax assets will be realized. The Company has recorded a provision for state income taxes and a corresponding current state tax payable of approximately $
The changes in the valuation allowance for deferred tax assets and liabilities for the three months ended March 31, 2023 and 2022 were net increases of $
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
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
22
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
8. 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. As of March 31, 2023, the Company is authorized to award
Stock Options
The Stock Incentive Plans prescribe various terms and conditions for the award of options and the total number of shares authorized for this purpose. For options, the strike price is equal to the fair market value of the Company’s stock price at the date of grant. Generally, options become exercisable based on years of service and vesting schedules, and expire after (i) a period of
The following tables summarize the Company’s stock option activity:
|
|
Options |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised/released |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
Options |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Balance at January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised/released |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
23
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option-pricing model. ASC 718, “Compensation- Stock Compensation” (“ASC 718”), requires the use of the fair-value-based method for measuring the value of stock-based compensation. For the three months ended March 31, 2023 there were
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, 2022, 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:
|
Three Months Ended |
|
||
|
|
2022 |
|
|
Weighted-average expected volatility |
|
|
% |
|
Weighted-average expected term (years) |
|
|
|
|
Weighted-average expected risk-free interest rate |
|
|
% |
|
Dividend yield |
|
|
|
|
Weighted-average fair value of options granted |
|
$ |
|
Restricted Stock Units
The following tables summarize the Company’s RSU activity:
|
|
Number of RSUs |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised/released |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
Number of RSUs |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Balance at January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised/released |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
The Company estimates the fair value of each restricted stock unit using the fair value of the Company’s stock on the date of grant.
24
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
Market-Based Stock Units
The following tables summarize the Company’s market-based stock unit ("MSU") activity:
|
|
Number of MSUs |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised/released |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
Number of MSUs |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate |
|
||||
Balance at January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised/released |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cancelled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
These MSUs vest upon the
Employee Stock Purchase Plan
On September 25, 2020, the Company established an Employee Stock Purchase Plan (“ESPP”) which allows employees of the Company to purchase common stock of the Company through accumulated payroll deductions. Offerings under this plan have a duration of six months. On the exercise date, the participant may acquire a maximum of
Stock-Based Compensation
Stock-based compensation expense is recognized ratably over the requisite service period for all awards. The following tables summarize the Company’s stock-based compensation recorded as a result of applying the provisions of ASC 718 to equity awards:
|
|
Three months ended |
|
|
Unrecognized compensation cost related to non-vested awards as of March 31, 2023 |
|
|
Weighted-average remaining vesting period as of March 31, 2023 (years) |
|
|||
Stock options |
|
$ |
|
|
$ |
|
|
|
|
|||
RSUs |
|
|
|
|
|
|
|
|
|
|||
MSUs |
|
|
( |
) |
|
|
|
|
|
|
||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
|
|
|
|
Three months ended |
|
|
Unrecognized compensation cost related to non-vested awards as of December 31, 2022 |
|
|
Weighted-average remaining vesting period as of December 31, 2022 (years) |
|
|||
Stock options |
|
$ |
|
|
$ |
|
|
|
|
|||
RSUs |
|
|
|
|
|
|
|
|
|
|||
MSUs |
|
|
( |
) |
|
|
|
|
|
|
||
ESPP |
|
|
|
|
|
|
|
|
|
|||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
|
|
During the three months ended March 31, 2023 and 2022, there were forfeitures of MSU awards of certain members of executive leadership of $
25
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
9. Earnings per Share
Basic earnings (loss) per share is determined by dividing the net loss attributable to Laird Superfood, Inc. common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is similarly determined, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares consist of employee stock options and restricted stock units.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares outstanding - basic and diluted |
|
|
|
|
|
|
||
Common stock options, restricted stock awards, and market-based stock awards excluded due to anti-dilutive effect |
|
|
|
|
|
|
||
Basic and diluted: |
|
|
|
|
|
|
||
Net loss per share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
10. Concentrations
The Company had
The Company had
The Company sold a substantial portion of products to
The Company purchased a substantial portion of products from
In addition, our top suppliers are in a similar geographic area, which increases the risk of significant supply disruptions from local and regional events. China, Indonesia, and Vietnam geographically accounted for approximately
11. 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 grant date fair value of the service provided. Additional material related party transactions are noted below.
License Agreements
On May 26, 2020, the Company executed a License and Preservation Agreement which superseded the predecessor license and preservation agreement with both Mr. Hamilton and Ms. Reece. Among other modifications, the agreement (i) modified certain approval rights, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additional
Marketing Agreements
The Company has an influencer agreement with Gabby Reece to provide certain marketing services. In connection with these services, in the three months ended March 31, 2023 and 2022, advertising expenses totaling $
26
LAIRD SUPERFOOD, INC.
Notes to Unaudited Consolidated Financial Statements
12. Revenue Recognition
The Company’s primary source of revenue is sales of coffee creamers, hydration and beverage enhancing supplements, harvest snacks and other food items, and coffee, tea and hot chocolate products. The Company recognizes revenue when control of the promised good is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales. Each delivery or shipment made to a third-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collect the sales price under normal credit terms. Additionally, the Company estimates the impact of certain common practices employed by us and other manufacturers of consumer products, such as scan-based trading, product rebate and other pricing allowances, product returns, trade promotions, sales broker commissions and slotting fees. These estimates are recorded at the end of each reporting period.
In accordance with ASC 606, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
$ |
|
|
% of Total |
|
|
$ |
|
|
% of Total |
|
||||
Coffee creamers |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Hydration and beverage enhancing supplements |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Harvest snacks and other food items |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Coffee, tea, and hot chocolate products |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Other |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Gross sales |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Shipping income |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Returns and discounts |
|
|
( |
) |
|
|
( |
)% |
|
|
( |
) |
|
|
( |
)% |
Sales, net |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
The Company generates revenue through two channels: e-commerce and wholesale:
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
$ |
|
|
% of Total |
|
|
$ |
|
|
% of Total |
|
||||
E-commerce |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Wholesale |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Sales, net |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
Receivables from contracts with customers are included in Accounts receivable. Contract assets include deferred costs of goods sold associated with deferred revenue and are included in finished goods inventories. Contract liabilities include deferred revenue, customer deposits, rewards programs, and refund liabilities, and are included in accrued expenses.
|
|
January 1, |
|
December 31, |
|
March 31, |
|
|||
Accounts receivable, net |
|
$ |
|
$ |
|
$ |
|
|||
Contract assets |
|
$ |
|
$ |
|
$ |
|
|||
Contract liabilities |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
27
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 is a supplement to and should be read in conjunction with the unaudited consolidated condensed financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Cautionary 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, 2022.
Overview
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Functional and organic roasted and instant coffees, teas, and hot chocolate, Hydrate hydration products and beverage enhancing supplements, and Harvest snacks and other food items. Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients. Laird Superfood’s long-term goal is to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality, allowing the Company to maximize penetration of a multi-billion-dollar opportunity in the grocery market.
Net sales decreased to $8.1 million for the three months ended March 31, 2023 from $9.3 million for the three months ended March 31, 2022. The first quarter of 2023 delivered strong results in line with our annual operating plan. Wholesale net sales grew 20% sequentially compared to the fourth quarter of 2022, driven by distribution expansion in the natural channel and improved velocities in our coffee creamer segment due to the new branding and packaging. Wholesale net sales declined 6% compared to the first quarter of 2022 due to the timing of Club sales. E-commerce channel sales decreased 18% year over year driven by significant planned reductions in marketing media spend as well as out of stocks related to the product quality withdrawal issue as we rebuilt our inventory.
Our e-commerce business is two-pronged and consists of direct-to-consumer sales (lairdsuperfood.com and pickybars.com) and Amazon.com. For the three months ended March 31, 2023 and 2022, the e-commerce business made up 55% and 58% of our net sales, respectively. Lairdsuperfood.com and pickybars.com are platforms that provide an authentic brand experience for our customers that drives engagement and provides feedback for future product development. We view our proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our websites allows Laird Superfood to educate consumers on the benefits of our products and ingredients, while providing a positive customer experience. We believe this experience leads to higher retention rates among repeat users and subscribers, as evidenced by repeat users and subscribers accounting for 81% of direct-to-consumer sales for the three months ended March 31, 2023.
For the three months ended March 31, 2023 and 2022, Wholesale made up 45% and 42% of our net sales, respectively. Laird Superfood products are sold through a diverse set of wholesale channels, including conventional, natural and specialty grocery, club, food service, and drug stores. The diversity of our wholesale channel represents a strong competitive advantage for Laird Superfood and provides us with a larger total addressable market than would be considered normal for a food brand that is singularly focused on the grocery market.
Recent Developments
Exit activities
The Company ceased in-house production and fulfillment activities at the end of 2022 and moved to a third party outsourced model for manufacturing and fulfillment. As part of this transition, the Company disposed of unusable inventory, terminated its leases of manufacturing facilities effective January 31, 2023, and eliminated substantially all production and fulfillment labor. Manufacturing equipment, furniture, tools, and internal-use production software were sold or abandoned and were impaired accordingly in the fourth quarter of 2022. Final transition costs were incurred in the first quarter of 2023 and there are no further expected costs. This move was undertaken to transform our supply chain to a variable cost model that drastically reduces our overhead costs and allows for significant gross margin expansion. See Note 1 to the unaudited consolidated condensed financial statements elsewhere in this Quarterly Report on Form 10-Q.
Product quality issue
In the first quarter of 2023, we discovered a product quality issue with coconut milk powder from one of our suppliers and immediately initiated a voluntary product withdrawal and contacted all impacted wholesale customers and e-commerce consumers to aggressively pull back as much as of the affected product as possible. In connection with this withdrawal, we incurred costs associated with inventory obsolescence, quality testing, and remedial discounts and replacement orders of $0.5 million in the fourth quarter of 2022 and $0.4 million in the first quarter of 2023. In addition, we implemented a robust new sensory testing program to prevent future quality issues.
28
Key Factors Affecting our Performance
We believe that our future performance will depend on many factors, including the following:
Ability to Grow Our Customer Base in both E-commerce and Traditional Wholesale Distribution Channels
We are currently seeking to grow our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical wholesale distribution channels. E-commerce customer acquisitions typically occur at our websites, lairdsuperfood.com and pickybars.com, and Amazon.com. Our e-commerce customer acquisition program includes paid and unpaid social media, search, display and traditional media. Our products are also sold through a growing number of wholesale channels. Wholesale customers include grocery chains, natural food outlets, club stores, drug stores, and food service customers including coffee shops, gyms, restaurants, hospitality venues and corporate dining services, among others. Customer acquisition in physical wholesale channels depends on, among other things, paid promotions through retailers, display and traditional media.
Ability to Manage Co-Manufacturer and Third-Party Logistics Relationships
All of our production and logistics is handled by third-parties, and our performance will be highly dependent on the ability of these partners to produce and deliver our products in a timely manner and to our standards and at a reasonable cost.
Ability to Acquire and Retain Customers at a Reasonable Cost
We believe an ability to consistently acquire and retain customers at a reasonable cost relative to projected lifetime value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as balancing more targeted and measurable “direct response” marketing spend with advertising focused on increasing our long-term brand recognition, where success attribution is less directly measurable on a near-term basis.
Ability to Drive Repeat Usage of Our Products
We accrue substantial economic value from repeat users of our products who consistently re-order our products. The pace of our growth will be affected by the repeat usage dynamics of existing and newly acquired customers.
Ability to Expand Our Product Line
Our goal is to expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products, each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time.
Ability to Expand Gross Margins
Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing of raw materials, controlling labor and shipping costs, controlling the impacts of inflationary market factors, as well as managing co-packer relationships.
Ability to Expand Operating Margins
Our ability to expand operating margins will be impacted by our ability to cover fixed general and administrative costs and variable sales and marketing costs with higher revenues and gross profit dollars.
Ability to Manage Our Global Supply Chain
Our ability to grow and meet future demand will be affected by our ability to properly plan for and source inventory from a variety of suppliers located inside and outside the United States. We may encounter difficulties in sourcing products.
Ability to Optimize Key Components of Working Capital
Our ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by our ability to effectively manage all the key working capital components that could influence our cash conversion cycle.
Components of Results of Operations
Sales, net
We sell our products indirectly to consumers through a broad set of physical wholesale channels. We also derive revenue from the sale of our products directly to consumers through our direct websites, as well as third-party online channels.
Cost of Goods Sold
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.
29
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, 2023 (“Q1 2023”) and March 31, 2022 (“Q1 2022”)
The following table summarizes our results of operations for the periods indicated:
|
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Change |
|
||||
Sales, net |
|
$ |
8,112,938 |
|
|
$ |
9,340,013 |
|
|
$ |
(1,227,075 |
) |
|
|
(13 |
)% |
Cost of goods sold |
|
|
(6,239,062 |
) |
|
|
(7,390,203 |
) |
|
|
1,151,141 |
|
|
|
(16 |
)% |
Gross profit |
|
|
1,873,876 |
|
|
|
1,949,810 |
|
|
|
(75,934 |
) |
|
|
(4 |
)% |
Gross margin |
|
|
23.1 |
% |
|
|
20.9 |
% |
|
|
|
|
|
|
||
General and administrative |
|
|
2,998,444 |
|
|
|
11,828,644 |
|
|
|
(8,830,200 |
) |
|
|
(75 |
)% |
Research and product development |
|
|
83,866 |
|
|
|
103,833 |
|
|
|
(19,967 |
) |
|
|
(19 |
)% |
Sales and marketing |
|
|
3,094,048 |
|
|
|
3,971,640 |
|
|
|
(877,592 |
) |
|
|
(22 |
)% |
Total operating expenses |
|
|
6,176,358 |
|
|
|
15,904,117 |
|
|
|
(9,727,759 |
) |
|
|
(61 |
)% |
Operating loss |
|
|
(4,302,482 |
) |
|
|
(13,954,307 |
) |
|
|
9,651,825 |
|
|
|
(69 |
)% |
Other income (expense) |
|
|
170,994 |
|
|
|
(179,321 |
) |
|
|
350,315 |
|
|
|
(195 |
)% |
Loss before income taxes |
|
|
(4,131,488 |
) |
|
|
(14,133,628 |
) |
|
|
10,002,140 |
|
|
|
(71 |
)% |
Income tax expense |
|
|
(12,422 |
) |
|
|
(5,774 |
) |
|
|
(6,648 |
) |
|
|
115 |
% |
Net loss |
|
$ |
(4,143,910 |
) |
|
$ |
(14,139,402 |
) |
|
$ |
9,995,492 |
|
|
|
(71 |
)% |
Sales, Net
|
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Change |
|
||||
Sales, net |
|
$ |
8,112,938 |
|
|
$ |
9,340,013 |
|
|
$ |
(1,227,075 |
) |
|
|
(13 |
)% |
Net sales decreased to $8.1 million in Q1 2023 from $9.3 million in Q1 2022. The decline was primarily due to an 18% decline in our e-commerce channels, driven by out of stocks on Amazon and DTC related to the product quality issue as well as planned reductions in media spend in the DTC channel. Wholesale sales decreased by 6% driven primarily by $0.2 million of discounts for replacement products related to the product quality issue discovered in the first quarter of 2023. Otherwise, Wholesale sales were flat year over year as growth in Retail sales was offset by the timing of Club orders.
Cost of Goods Sold
|
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Change |
|
||||
Costs of goods sold |
|
$ |
(6,239,062 |
) |
|
$ |
(7,390,203 |
) |
|
$ |
1,151,141 |
|
|
|
(16 |
)% |
Cost of goods sold decreased to $6.2 million in Q1 2023 from $7.4 million in Q1 2022 in line with sales, with favorability as we begin to realize the benefits of the transition to a variable cost co-manufacturing model. Further, Q1 2023 included $0.1 million of inventory obsolescence charges related to a product quality issue which was identified in the first quarter of 2023.
Gross Profit
|
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Change |
|
||||
Gross profit |
|
$ |
1,873,876 |
|
|
$ |
1,949,810 |
|
|
$ |
(75,934 |
) |
|
|
(4 |
)% |
Gross profit decreased to $1.9 million in Q1 2023 from $1.9 million in Q1 2022. Gross margin improved to 23.1% in Q1 2023 from 20.9% in Q1 2022 driven by the transition to a co-manufactured model, offset in part by $0.4 million in one-time charges related to a product quality issue which was identified in Q1 2023.
Operating Expenses
|
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Change |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
$ |
2,998,444 |
|
|
$ |
11,828,644 |
|
|
$ |
(8,830,200 |
) |
|
|
(75 |
)% |
Research and product development |
|
|
83,866 |
|
|
|
103,833 |
|
|
|
(19,967 |
) |
|
|
(19 |
)% |
Sales and marketing |
|
|
3,094,048 |
|
|
|
3,971,640 |
|
|
|
(877,592 |
) |
|
|
(22 |
)% |
Total operating expenses |
|
$ |
6,176,358 |
|
|
$ |
15,904,117 |
|
|
$ |
(9,727,759 |
) |
|
|
(61 |
)% |
30
General and administrative expenses decreased to $3.0 million in Q1 2023 from $11.8 million in Q1 2022, primarily due to impairment of goodwill and long-lived acquisition intangible assets of $8.0 million in the first quarter of 2022, as well as reduced personnel costs and other general and administrative expenses following the exit activities in the fourth quarter of 2022.
Research and product development expenses were $0.1 million in Q1 2023 and Q1 2022. We are focused on strengthening the performance of current product offerings.
Sales and marketing expenses decreased to $3.1 million in Q1 2023 from $4.0 million in Q1 2022, primarily due to planned reduction in inefficient spend and lower personnel costs.
Other Income (Expense)
|
|
Three Months Ended March 31, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Change |
|
||||
Other income (expense) |
|
$ |
170,994 |
|
|
$ |
(179,321 |
) |
|
$ |
350,315 |
|
|
|
(195 |
)% |
Other income (expense) is composed of interest income and expense, rental income, income and losses related to investment securities available-for-sale, and other non-operating gains and losses.
Cash Flows
Comparison of the three months ended March 31, 2023 and 2022:
The following table shows a summary of our cash flows for the periods presented:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities |
|
$ |
(6,054,262 |
) |
|
$ |
(3,601,973 |
) |
Cash flows from investing activities |
|
|
135,737 |
|
|
|
7,811,897 |
|
Cash flows from financing activities |
|
|
(4,410 |
) |
|
|
14,248 |
|
Net change in cash |
|
$ |
(5,922,935 |
) |
|
$ |
4,224,172 |
|
Cash Flows from Operating Activities
Cash used in operating activities was $6.1 million for Q1 2023 as compared to $3.6 million used in Q1 2022. The increase in cash burn is driven by increasing accounts receivable levels, as well as decreases in current liabilities which included a $1.0 million payment in connection with the Sisters lease exit.
Cash Flows from Investing Activities
Cash provided by investing activities was $0.1 million for Q1 2023 as compared to cash provided by investing activities of $7.8 million for Q1 2022. The change is primarily due to proceeds from the sale of available-for-sale securities in the first quarter of 2022.
Cash Flows from Financing Activities
Cash used in financing activities was $4.4 thousand for Q1 2023 compared to $14.2 thousand of cash provided in Q1 2022, primarily related to inflows from stock option exercises.
Liquidity and Capital Resources
As of March 31, 2023, we had incurred accumulated net losses of $100.3 million, including operating losses of $4.3 million and $14.0 million for Q1 2023 and Q1 2022, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, however we took several strategic steps in 2022 to optimize spending and improve gross margins. These steps include transitioning out of in-house manufacturing to a third party co-manufactured model, closing manufacturing facilities and offices in Sisters, Oregon, several rounds of organizational restructuring reducing our workforce, reducing marketing and administrative investment through eliminating non-essential spend. We will continue to seek to optimize spending and expand gross margins. We have historically financed our operations and capital expenditures through private placements of our common stock, our initial public offering, 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. Cash used in operations was $6.1 million and $3.6 million for Q1 2023 and Q1 2022, respectively.
As of March 31, 2023, we had $11.9 million of cash-on-hand and $5.0 million of available borrowings under our lines of credit. As of December 31, 2022, we had $17.8 million of cash-on-hand and investments and $5.0 million of available borrowings under our lines of credit. As of March 31, 2023, and December 31, 2022, we had no outstanding notes payable and no amounts were outstanding under our lines of credit.
31
Our future capital requirements will depend on many factors, including our ability to execute to our planned sales growth and the continued improvement of our operating margins, the enhancement of our product platforms, the introduction of new products, and acquisition activity. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:
We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. Our management concluded that our recurring losses from operations, our limited cash resources on hand and the dependence by the Company on its ability to obtain additional financing to fund its operations after the current cash resources are exhausted raise substantial doubt about our ability to continue as a going concern for the twelve months following the date of this report.
Segment Information
We have one operating segment and one reportable segment. Our Chief Executive Officer reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Summary of Significant Accounting Policies” of the Notes to the Consolidated Condensed Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Condensed Financial Statements in Part II, Item 8 of the 2022 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s consolidated condensed financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2022 Form 10-K.
Recent Accounting Pronouncements
See Recently Issued Accounting Pronouncements in Note 1 to our unaudited consolidated condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Emerging Growth Company Status
As a company with less than $1.235 billion in annual gross revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
We may take advantage of these provisions until the end of the fiscal year in which the fifth anniversary of our IPO occurs, or such earlier time when we no longer qualify as an emerging growth company. We would cease to be an emerging growth company on the earlier of (1) the last day of the fiscal year (a) in which we have more than $1.235 billion in annual gross revenue or (b) in which we have more than $700 million in market value of our capital stock held by non-affiliates, or (2) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all these reduced burdens.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, we are not required to provide this information in our Quarterly Reports.
32
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Company management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended of March 31, 2023, aside from those described above, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings.
We are not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.
Item 1A. Risk Factors.
The following risk factor disclosures should be read in conjunction with the risk factors described in the Company's 2022 Form 10-K and subsequent periodic filings with the SEC. We are supplementing the risk factors previously disclosed in such filings to include the following updated risk factors:
Our historical operating results indicate substantial doubt exists related to our ability to operate as a going concern.
Our unaudited consolidated condensed financial statements for the quarter ended March 31, 2023 were prepared assuming that we will continue as a going concern. The going concern basis of presentation assumes that we will continue in operation for the foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern. Our management concluded that our recurring losses from operations, our limited cash resources on hand and the dependence by the Company on its ability to obtain additional financing to fund its operations after the current cash resources are exhausted raise substantial doubt about our ability to continue as a going concern for the twelve months following the date of this report.
As reflected in the accompanying unaudited consolidated condensed financial statements, the Company had cash and cash equivalents of $11.9 million and an accumulated deficit of $100.3 million at March 31, 2023, and cash used in operations was $6.1 million in the three months ended March 31, 2023. The Company has had operating losses and net outflows of cash since inception, reporting an average cash used in operations of $4.4 million per quarter, and we expect to continue to generate operating losses for the foreseeable future. There can be no assurance that the Company will be able to raise additional funds, whether through public offerings, private placements or otherwise, on terms acceptable to the Company or at all. If we are delayed in completing or are unable to raise additional funds, we may seek to reduce our cash outflows, but there are no assurances that these reductions would be sufficient to allow us to continue to operate as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation and dissolution could be significantly lower than the values reflected in our unaudited consolidated condensed financial statements and an investor could lose all or part of its investment in our equity. In addition, the perception that we may not be able to continue as a going concern may have an adverse impact on our business due to concerns about our ability to meet our future contractual obligations or pursue additional strategic transactions.
Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on the Company’s operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10 and March 12, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank (“SVB”), and Signature Bank, respectively, after each bank was unable to continue their operations. These events exposed vulnerabilities in the banking sector, including legal
33
uncertainties, significant deposit outflows, volatility and contagion risk, and caused market prices of regional bank stocks to plummet.
We have not experienced any adverse impact to our current and projected business operations, financial condition and results of operations as a result of the SVB, Signature Bank or other recent bank failures; however, we are unable to predict the extent or nature of the impacts of these evolving circumstances at this time. If, for example, other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. Therefore, while it is not currently possible to predict the potential impact that the failure of SVB, Signature Bank, or other bank failures could have on economic activity or our business in particular, the failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.
Although we expect to continue to assess our banking relationships as we believe necessary or appropriate, our access to cash in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect the financial institutions with which we have banking relationships, and in turn, us. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could also include factors involving financial markets or the financial services industry generally. The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Not Applicable.
34
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 / |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1# |
|
|
S-8 POS |
|
333-248985 |
|
|
|
5/2/2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
31.2 |
|
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
|||||
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
|||||
101.INS |
|
Inline XBRL Instance Document |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|||||
104 |
|
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
|
|
|
|
|
|
|
|
|
|
* Filed herewith.
** The certifications attached as Exhibit 32.1 and 32.2 are not deemed filed with the SEC and are not incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such.
# Indicates management contract or compensatory plan or arrangement.
35
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 11, 2023 |
/s/ Jason Vieth |
|
Jason Vieth |
|
President and Chief Executive Officer |
|
|
Date: May 11, 2023 |
/s/ Anya Hamill |
|
Anya Hamill |
|
Chief Financial Officer |
36