EDGAR 10-K Filing

Company CIK: 1650696
Filing Year: 2022
Filename: 1650696_10-K_2022_0000950170-22-003138.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS.
Overview
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, harvest snacks and other food items, and roasted and instant coffees, teas and hot chocolate. Over time, Laird Superfood plans to grow revenues by further penetrating the multi-billion-dollar market opportunity presented by our current product lines, as well as expanding our platform to include additional products that meet our strict plant-based ingredient criteria.
As a result of growing consumer demand for Laird Superfood products and the continued expansion of our omnichannel distribution strategy, our net sales grew to $36.8 million in 2021 from $25.8 million in 2020. We operate in one operating segment and one reportable segment in light of our management reviewing financial information presented on an aggregate basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.
COVID-19 Update
Beginning in March 2020 and over the course of the COVID-19 pandemic, our senior leadership has met regularly to review and assess the evolving situation and to recommend risk mitigation actions for the health and safety of our employees. In order to enhance the safety of our employees during the COVID-19 pandemic, we have implemented various measures, including employee screening protocols; facility cleaning and sanitation protocols; policies on the use of personal protective equipment; the installation of physical barriers between employees; and robust employee leave protocols. We have also implemented a work-from-home policy for certain office personnel.
Market Opportunity
Laird Superfood participates in what the U.S. Census Bureau estimates to be a $800 billion grocery market as of 2021. Laird Superfood is specifically focused on the U.S. Natural, Organic and Functional Food and Beverages sub-segment of the food and beverage market. According to the New Hope Network, in 2020, U.S. Natural, Organic and Functional Food and Beverages and Supplement sales were approximately $259 billion and grew 13% from the prior year. Further, according to the Nutrition Business Journal, during the same period, third-party and direct e-commerce sales grew 60% for U.S. Natural, Organic, Functional Food and Beverage and Supplement sales.
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. There is also increasing recognition of the environmental impact of animal-based products. Per the Plant-Based Foods Association, U.S. retail sales of plant-based foods increased 27% from 2020 to 2021, reaching a market value of $7 billion, compared to increases of 15% in the overall food category.
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.
Our Competitive Strengths
We believe the following strengths differentiate Laird Superfood and create long-term, sustainable competitive advantages.
An Emerging Platform Within the Rapidly Expanding Plant-Based Natural Foods Industry
Over the near and intermediate term, Laird Superfood is highly focused on maximizing revenue growth by further penetrating the multi-billion-dollar market opportunity presented by our current product lines. However, we believe the larger long-term opportunity lies in building Laird Superfood into a unique platform within the natural foods industry, which is currently dominated by single-product companies. The core tenets of this platform approach are strengthening our authentic and trusted brand name, growing our expansive omnichannel distribution strategy and the introduction of a constant flow of new products that align with our core ethos. This platform provides opportunities for continual expansion of our total addressable market (“TAM”) to allow long-duration growth, sustained differentiation of our brand, product diversification and leveraging our core strengths and operating costs to increase profit margins.
An Authentic and Trusted Brand Name
An authentic and trusted brand is one of the strongest long-term barriers to entry and sources of sustained differentiation in the consumer products industry. Since inception, Laird Superfood has invested heavily in building a trusted brand that consumers immediately identify as authentic, plant-based, nutrient-dense and functional. Along with more traditional methods of brand-building, we have effectively harnessed the authentic lifestyle of Laird Hamilton and Gabrielle Reece, both of whom have well-earned reputations for being on the cutting edge of fitness and nutrition. Our goal is to make Laird Superfood the choice for customers searching for nutrient dense, functional foods at a reasonable price. Our target market extends well beyond elite athletes into the mass market due to our recognition that Laird Superfood products must not only be natural, functional and nutrient-dense, they must also taste great and be affordable to provide access to all consumers.
Balanced and Highly Differentiated Omnichannel Distribution Strategy
Our highly differentiated omnichannel distribution strategy has three key components: online, wholesale and food service. In aggregate, this omnichannel strategy provides us with a diverse set of customers and wholesale partners, leading to a larger TAM opportunity than is normally available to products available primarily in grocery stores, along with an opportunity to develop a direct relationship with our customers at lairdsuperfood.com. We believe that, along with a trusted brand name, extensive proprietary distribution is a critical long-term and sustainable barrier to entry in the food industry.
Our Growth Strategy
Our primary growth strategies are as follows:
Open-Ended and Long Duration Growth Opportunity in the U.S. Grocery Market
The U.S. grocery market is one of the largest retail end-markets in the world. Laird Superfood’s strategy is to maximize penetration of this opportunity through a variety of avenues, including growing brand trust and recognition, significantly expanding our wholesale distribution footprint to multiples of our current level of approximately 8,100 retail doors and over 36,000 points of distribution, driving shelf velocity through an acceleration of online and offline advertising and introducing new products to expand our store footprint.
Exposure to Plant-Based, Functional and Natural Foods Portions of Grocery Market
Within the grocery category, there is an ongoing secular shift from highly processed legacy brands that demonstrate little nutritional benefit to natural, nutrient-dense, functional and plant-based alternatives. We expect the shift in consumer tastes driving the growth of natural and plant-based alternatives will continue throughout the foreseeable future as consumers become better educated on nutrition and focus on the health and wellness of themselves, their families and the environment. An increasing number of natural and plant-based products are moving beyond the natural and specialty stores and into conventional grocery stores. The continuation of these trends should benefit Laird Superfood as it seeks to penetrate the overall grocery market.
Business Model Characterized by Repeat and Recurring Revenues
Because the consumption of coffee, creamers, and hydration products is a daily ritual for many consumers, there is a natural and frequent repeat usage of Laird Superfood products among large portions of our customer base. For this reason, Laird Superfood has always enjoyed a meaningful base of recurring revenues due to repeat orders by its consumers and wholesale partners. Growing this base of recurring revenues is a strong focus of Laird Superfood as it evaluates new product development opportunities, acquisitions and marketing strategies.
Continued Expansion of Distribution Footprint
Currently, our products are marketed and sold through a diverse set of physical retail and online channels, including grocery chains, club stores, specialty and natural food outlets, coffee shops, juice bars, gyms, restaurants, hospitality venues, corporate workplaces, lairdsuperfood.com, pickybars.com, and Amazon.com. Maximizing potential distribution will be a key growth driver for Laird Superfood and our goal is to expand distribution so that our products are available wherever our customers choose to shop, whether it be a retail store, food service environment or directly online.
Maximize Market Penetration of Existing Product Lines
Laird Superfood’s existing creamer, hydration and beverage enhancing supplement, harvest snacks and other food items, and instant and roasted coffee categories represent a multi-billion-dollar TAM. We believe penetrating these core markets with our differentiated product lines provides Laird Superfood with a large and long-duration growth opportunity. In the near-term, Laird Superfood will focus on growing share within these categories.
New Product Development
While Laird Superfood’s current product lines are growing strongly and address multi-billion-dollar market opportunities with differentiated products, we intend to enhance our growth by launching new products over time. We are focused on creating products that conform to our uncompromising brand ethos of great taste, high-quality ingredients, nutritional density and functionality. Additional criteria for new product development include the potential for broad commercial acceptance, size of market opportunity, regulatory compliance issues, manufacturing process, availability and cost of raw materials, shelf-life and expected usage patterns by potential customers.
From a growth perspective, ongoing new product launches are expected to continually increase our TAM opportunity. Broadening our product line will also serve to diversify our revenue base and reduce exposure to potential competitive intensity in any one category. We expect all new products, whether developed internally or sourced externally, will ultimately be branded Laird Superfood and they will expand Laird Superfood’s opportunity to become part of our customer’s daily ritual of food and beverage consumption.
Opportunity for Tuck-In Acquisitions to Supplement Organic Growth and Expand Platform
On May 3, 2021, the Company acquired Picky Bars, LLC (“Picky Bars”), an innovator in the healthy snack industry focused on nutritionally balanced, real-food products. Prior to the acquisition of Picky Bars, Laird Superfood’s revenues have been driven solely by organic growth, and while we anticipate continued organic growth, we believe there will be opportunities to expand our TAM and diversify our revenue base through additional acquisitions. In this scenario, our belief is acquisitions would be of a tuck-in nature and target highly fragmented markets within plant-based foods. We would expect to target acquired products that fit within our ethos of great taste, high-quality ingredients, nutritional density and functionality.
Proven Efficiency in Marketing Spend to Drive Growth and Acquire New Customers
Throughout our history, Laird Superfood has maintained a disciplined, data-driven and returns-based focus on the deployment of marketing dollars to build our brand and acquire new customers. In our view, marketing dollars must be deployed efficiently to sustain growth over the long-term and eventually move Laird Superfood towards profitability. We have placed a strong focus on generating free and organic traffic for our website and social media channels, expanding our proprietary database of customers, growing subscriptions and acquiring customers from a wide variety of channels. These efforts are aimed at structurally reducing our dependence on the least proprietary and most competitive sources of online customer acquisition. Social media channels, in particular, are useful for launching new products and introducing promotions, as are the social media presences of Mr. Hamilton and Ms. Reece, and certain other influential persons who support the brand in their social media. We expect to remain disciplined in our customer acquisition efforts going forward and have plans to significantly expand the number of channels through which we will attempt to find additional sources of low-cost customer acquisition opportunities.
Vertically Integrated Business Model
Since inception, Laird Superfood has focused on building a vertically integrated business model. The core of this strategy is our highly efficient manufacturing process, which enables rapid expansion of production capacity, provides fixed-cost leverage on increased volumes and optimizes our ability to control quality. We produce our powdered creamers and hydration products on automated equipment. At this stage of revenue contribution, we have elected to co-pack our liquid creamers, harvest snacks, beverage enhancing supplements, and whole bean and ground coffee. Based on our current projections, we believe our existing footprint will support $100 million in annual gross sales of internally produced powdered products without a need for a material increase in capital expenditures. This provides us with substantial current excess manufacturing capacity to enable future growth in a capital efficient manner.
In addition to manufacturing capabilities, we have internalized branding, design, packaging, digital marketing, customer service and data analytic capabilities, along with finance, research and development, and human resource functions. Our broad in-house capabilities and extensive manufacturing capacity are expected to enable significant fixed-cost leverage going forward in manufacturing, as well as most other operating expense line items.
Targeting Top-Tier Food Industry Gross Margins
Strong gross margins will provide Laird Superfood with a sustainable competitive advantage, as these gross profit dollars can be used to invest in growth initiatives to further differentiate our brand, expand our revenue opportunity and increasingly cover fixed costs as we move toward profitability.
Focus on Environmental, Social and Governance (ESG) Best Practices
Laird Superfood’s founders strongly believe we should seek to drive value for all relevant stakeholders, including customers, employees, community, shareholders and the broader environment. This philosophy of “Ohana” is particularly important to Laird Hamilton and Gabrielle Reece and permeates our culture. Laird Superfood is conscientious in its sourcing of raw materials, the carbon-benefits of facilitating plant-based alternatives, the impact of our operations on the environment and our community and providing products that discourage the culture of single-use plastics.
Our Products
Our authentic and sustainably differentiated plant-based products become part of our customer’s “Daily Ritual,” providing energy and hydration throughout the day, presenting the opportunity to expand a portfolio of plant-based products. As part of our focus on sustainability and a better-for-you “Daily Ritual,” the product categories we have focused on to date are coffee creamers, hydration and beverage enhancing supplements, harvest snacks and other food items, and coffee, tea and hot chocolate products.
Our gross sales by product category are reflected below:
Years Ended December 31,
$
% of Total
$
% of Total
Coffee creamers
$
21,767,409
%
$
18,432,236
%
Hydration and beverage enhancing supplements
5,814,629
%
3,893,406
%
Harvest snacks and other food items
5,228,888
%
135,509
%
Coffee, tea, and hot chocolate products
7,108,361
%
5,922,017
%
Other
808,352
%
588,754
%
Gross sales
40,727,639
%
28,971,922
%
Shipping income
457,879
%
248,865
%
Returns and discounts
(4,374,565
)
(11
)%
(3,437,561
)
(13
)%
Sales, net
$
36,810,953
%
$
25,783,226
%
Coffee creamers include sales of powdered and liquid coffee creamers. Hydration and beverage enhancing supplements include sales of Hydrate coconut waters and our full Activate and Renew supplement lines. Harvest snacks and other food items include ready to eat food offerings as well as baking and pancake mixes. Coffee, tea, and hot chocolate products include traditional and functional ground and whole bean coffee, Hot Chocolate with Functional Mushrooms, and our InstaFuel line of just-add-water coffee and tea products. Other products include miscellaneous branded goods, such as coffee mugs, thermoses, t-shirts, and hats.
Coffee Creamers
Laird Superfood is part of the $5.6 billion domestic coffee creamer market with its cornerstone portfolio of Superfood Creamers. According to ReportLinker, the creamer category is expected to grow at a 5.6% compound annual growth rate ("CAGR") through 2026. Laird Superfood’s creamer business grew 18% in 2021.
In July 2015, we introduced the Original Laird Superfood Creamer and since that time have introduced several additional flavors. In April 2020, Laird Superfood entered the liquid creamer market, expanding its TAM to $5.6 billion.
Laird Superfood sells 13 SKUs of powdered coffee creamers and seven SKUs of liquid coffee creamer. Sales of coffee creamer represented 59% of our net sales in 2021 and 71% of our net sales in 2020. We expect to continue expanding our Superfood Creamer platform going forward with additional flavors, nutritional profiles, and formulations based on consumer preferences and demand. Such products demonstrate attractive repeat usage and customer lifetime value characteristics.
The three main benefits and points of differentiation to consumers from our Superfood Creamer products are their taste, limited ingredient set, and their inclusion of plant-based fats. All creamers include Aquamin, a natural source of calcium and trace amounts of 72 other minerals, and all liquid creamers are differentiated by functional mushroom extracts in their ingredient set. Powdered creamers have the further appeal of shelf stability and on-the-go convenience.
Powdered Coffee Creamers
Laird Superfood’s Superfood Creamer was originated in powdered form for convenience and sustainability. We have developed 13 powdered SKUs: Original Superfood Creamer, Unsweetened Superfood Creamer, Cacao Superfood Creamer, Turmeric Superfood Creamer, seasonal Pumpkin Spice Superfood Creamer, seasonal Chocolate Mint Superfood Creamer, Vanilla Superfood Creamer, Original Superfood Creamer with Functional Mushrooms, Original Aloha OatMac Superfood Creamer, Unsweetened Aloha OatMac Superfood Creamer, Turmeric Aloha OatMac Superfood Creamer, seasonal Pumpkin Spice Aloha OatMac Superfood Creamer, and Original Aloha OatMac Superfood Creamer with Functional Mushrooms. Our powdered coffee creamers have an 18-month shelf life.
Powdered coffee creamers have historically represented a smaller, lower-price-point segment of the coffee creamer market, but we believe our powdered Superfood Creamers are expanding that segment and competing for customers who historically have purchased liquid coffee creamers.
Liquid Coffee Creamers
Our liquid coffee creamers were developed internally based on naturally sourced, delicious and functional ingredients. Liquid creamers provide the added benefits of being on the perimeter refrigerated shelf space, as well as a lower price point per unit.
We have developed seven liquid SKUs: Original with Functional Mushrooms, Unsweetened with Functional Mushrooms, Vanilla with Functional Mushrooms, Turmeric with Functional Mushrooms, Cacao with Functional Mushroom, Cinnamon with Functional Mushrooms, and seasonal Pumpkin Spice with Functional Mushrooms.
Hydration and Beverage Enhancing Supplements
Laird Superfood’s hydration and beverage enhancing supplement portfolio includes our Hydrate coconut water products (four SKUs), our Activate Platform (three SKUs), our Performance Mushroom and Mushroom Botanical supplements (four SKUs), and our Renew Platform (three SKUs). These products represented 16% and 15% of our net sales in 2021 and 2020, respectively.
The main benefits and points of differentiation to consumers from our Hydrate products are a limited number of ingredients; no artificial sugars, ingredients or colors that are prevalent in most competing sports drinks; and a lower cost per serving than traditional single-use packaged sports drinks and coconut waters. Hydrate is also environmentally friendly due to its powdered form, avoiding single use plastics. The main benefits of our beverage enhancing supplements are a plant-based, less processed and recognizable ingredients set.
Hydrate
We currently produce four SKUs of our powdered coconut water Hydrate platform: Original Hydrate, Pineapple Mango Hydrate, Matcha Hydrate, and Orange Guava Hydrate.
In our Hydrate products, we focus on price per serving, emphasizing value in our products compared to single-use products.
Beverage Enhancing Supplements
Our beverage enhancing supplement line is currently ten SKUs: Performance Mushrooms, Stress Less Functional Mushroom Botanical Blend, Wellness Functional Mushroom Botanical Blend, Energize Functional Mushroom Botanical Blend, Activate Daily Jumpstart, Activate Prebiotic Daily Greens, Activate Immune, Renew Rest and Recover, and Renew Plant-Based Original and Cacao Protein.
Our Activate Prebiotic Daily Greens and Renew Plant-Based Protein were launched in December 2020, our Activate Immune and Renew Rest and Recover were launched in May 2021, and our Mushroom Botanicals were launched in September 2021. We are in the early stages of building out our supplements portfolio and will continue to expand the breadth of our Activate, Renew and Mushroom offerings over the course of the next several years.
Harvest Snacks and Other Food Items
Pili Nuts and Harvest Dates
Laird Superfood began selling four SKUs of high-quality, naturally sourced, functional snack products including Pili Nuts and Harvest Dates in the fourth quarter of 2020. We have developed three Pili Nut SKUs, including Himalayan Salt Pili Nuts, Matcha Pili Nuts, and Cacao Pili Nuts, and one SKU of Original Harvest Dates.
Picky Bars, Performance Oatmeal, and Performance Granolas
Laird Superfood acquired Picky Bars in May 2021 and began selling them as part of a portfolio of better-for-you foods. The acquired real-food portfolio includes ten SKUs of Picky Bars, four SKUs of Performance Oatmeal, and five SKUs of Performance Granola.
Coffee, Tea, and Hot Chocolate Products
InstaFuel and Hot Chocolate with Functional Mushrooms
Laird Superfood sells four SKUs of high-quality instant beverage products pre-mixed with its superfood creamer, in a just-add-hot-water line of InstaFuel products: Original InstaFuel (coffee with Original Superfood Creamer), Unsweetened InstaFuel (coffee with Unsweetened Superfood Creamer), Matcha InstaFuel (green tea and Original Superfood Creamer), and Chai InstaFuel (black tea and Original Superfood Creamer). Laird Superfood also sells one SKU of Hot Chocolate with functional mushrooms.
We currently self-manufacture all our InstaFuel and Hot Chocolate products to maximize long-term margin and control quality.
Whole Bean and Ground Coffee
Coffees offer an intuitive and complementary sale to individuals purchasing our creamers and we believe that our organic coffee blended with functional mushrooms is a point of differentiation in the coffee segment. We currently sell ten whole and ground roasts.
Our coffees are sourced from Peru, and are a hand-picked, high altitude, shade grown variety selected for their low acidity.
Our Customer Usage Patterns
All Laird Superfood products are focused on providing nutrient dense and functional alternatives in multi-billion-dollar market categories, such as coffee creamers, sports drinks, and healthy snacks. Laird Superfood products are also designed to become part of an individual’s daily ritual and repeated usage patterns.
The majority of our business is currently conducted online, and we expect that percentage will decrease over time due to our anticipated roll-out across physical retail channels. We have multiple years of cohort data on all customers that have ordered through our direct website. We view this data as indicative of expected customer usage patterns across all channels on the basis of historic trend analysis.
Subscriptions play an important role in driving retention rates for our direct online business at lairdsuperfood.com and pickybars.com and in 2021 and 2020 subscriptions made up 39% and 30% of our direct online net sales, respectively. In addition to subscriptions, our direct online business has a high percentage of repeat users. In 2021 and 2020, 77% and 66% of the direct online net sales came from either subscribers or repeat users. These dynamics create meaningful recurring revenues and the combination of repeat usage, order frequency and retention rates informs our views on strategic marketing spend and customer unit economics.
Distribution Channels
We generate revenue through three channels: online, wholesale, and food service. Our customers and distribution channels include our online business through our website, lairdsuperfood.com, pickybars.com, and Amazon.com, as well as our wholesale sales to distributors and retailers in channels such as specialty, conventional grocery, mass market retail and drug retail and food service customers.
Our net sales by distribution channel are reflected below:
For the Years Ended December 31,
$
% of Total
$
% of Total
Online
$
22,687,736
%
$
14,501,706
%
Wholesale
13,598,792
%
10,773,345
%
Food service
524,425
%
508,175
%
Sales, net
$
36,810,953
%
$
25,783,226
%
Online
Our online business consists of lairdsuperfood.com, pickybars.com, and Amazon.com.
Lairdsuperfood.com sells all of our SKUs with the exception of our refrigerated liquid Superfood Creamers. Lairdsuperfood.com allows for online-only sales of trial products, prior to the investment necessary to launch in wholesale. Pickybars.com sells all of our acquired Picky Bar SKUs, plus a rotating assortment of our historic Laird Superfood SKUs.
Content on our website allows Laird Superfood to educate consumers on the benefits of our products and ingredients, market and cross-sell new products. It also facilitates our subscription business which has shown consistent revenue growth since its inception in May 2017.
For sales through Amazon.com, we utilize both fulfilled by Amazon (“FBA”) and fulfilled by manufacturer processes. Related to FBA, we send products to Amazon, and Amazon fulfills orders placed through its online marketplace from its fulfillment centers. Amazon charges us fulfillment fees for this service and may charge storage fees for certain inventory. We sell a number of our SKUs on Amazon.com. Sales through Amazon.com accounted for 16% and 21% of our total net sales in 2021 and 2020, respectively.
Our net sales from our online business are reflected below:
For the Years Ended December 31,
Lairdsuperfood.com and Pickybars.com
$
16,777,515
$
8,964,625
Amazon.com
5,910,221
5,537,081
Total direct sales, net
$
22,687,736
$
14,501,706
Wholesale
Our wholesale business addresses the $800 billion grocery industry, as well as many non-grocery retail channels. In 2021, wholesale made up 37% of our net sales, and in 2020, wholesale made up 42% of our net sales. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. We estimate our products are in over 8,100 retail door locations and over 36,000 points of distribution as of December 31, 2021.
Our wholesale net sales include sales into wholesale grocery distribution, such as United Natural Foods, Inc. and KeHE Distributors, distributing to clients such as Whole Foods, Erewhon, Sprouts, Kroger, and Safeway, as well as direct wholesale sales to retailers across diverse channels, such as Costco, HEB, HyVee, Natural Grocers, CVS, and REI.
In 2021 and 2020, the wholesale business represented $13.6 million and $10.8 million of net sales, or 37% and 42% of our net sales, respectively. Our largest wholesale customer in 2021 and 2020 was Costco which represented 13% and 23% of our total net sales, respectively. No other customer represented more than 10% of our total net sales in 2021 or 2020.
According to SPINS, as of December 31, 2021, we have achieved a brand All Commodity Volume ("ACV") of 58% in the natural enhanced retailer channel, up from 52% as of December 31, 2020. In the conventional grocery channel, we estimate we have achieved 14% of ACV as of December 31, 2021, up from 11% as of December 31, 2020.
Food Service
Our food service business addresses a broad set of customers including local and regional coffee shops, juice bars, corporate offices, hotels, restaurants, college campuses, professional sports teams and gyms. In 2021 and 2020, food service was 1% and 2% of our net sales, respectively.
Laird Superfood has worked with Bunn, one of the largest coffee capital equipment manufacturers in the United States, to create the Laird Superfood Crescendo®, a plant-based latte machine that is a convenient solution for a variety of office, gym, restaurant, and other food service environments.
In addition to our Crescendo® machines, our machines platform also includes our other hot beverage machines ("HBM"), offering a convenient solution for office, food service, and coffee shop environments. Our HBM business is currently a small part of our revenue, but we believe it has potential to become meaningful given strong usage dynamics. As of December 31, 2021, last twelve-month net sales to food service customers were 1% of net sales, and our machine platform represented less than 1% during the same period.
Competition
Fundamentally, we do not believe our competition is our peer better-for-you, less processed creamer companies. We view our competition as the legacy products which are refined-sugar laden, highly processed, and have undecipherable ingredient lists. We believe consumers want more transparency and understanding of what they are putting in their bodies, and are seeking less-processed alternatives. We are driving those trends through a trusted, authentic brand platform.
We compete in the following markets, based on how we categorize our core products:
Coffee Creamers
Our creamer products primarily compete within the $5.6 billion domestic creamer market that, according to ReportLinker, is expected to grow at a 5.6% CAGR through 2026, and includes products offered by Danone SA, TreeHouse Foods Inc., Nestle SA and Dean Foods Co, among others.
We believe our creamers are differentiated from competing products due to their superior taste profile, a limited ingredient set, and a differentiated energy profile due to the inclusion of plant-based fats. In addition to being coffee additives, our powdered creamers are used by consumers in a variety of different applications, such as smoothies and baked goods.
Hydration and Beverage Enhancing Supplements
Our Hydrate platform primarily competes against hydration enhancing sports drinks. The two dominant competitors in the $8.3 billion sports drink market are Gatorade, owned by PepsiCo, and PowerAde, owned by The Coca-Cola Company.
Hydrate also competes within the $4.3 billion coconut water market, which is highly fragmented relative to the sports drink market.
We believe that our Hydrate platform is differentiated from competing products due to a very limited ingredient set that contains none of the artificial sugars, ingredients or colors that are prevalent in most competing sports drinks. Due to its convenient powdered form, Hydrate also allows customers to adjust serving size based on individual taste preference, has a lower cost per serving than traditional sports drinks or coconut waters and is environmentally friendly due to its powdered form and elimination of single-use plastics.
Activate, Renew and Performance Mushroom Supplements
Our Activate Daily Jumpstart, Activate Prebiotic Daily Greens, Activate Immune, and Renew Rest and Recover lines compete in the $119.7 billion global vitamin and supplements market. Activate Daily Jumpstart and Activate Prebiotic Daily Greens compete largely as an alternative to single-serve cold-pressed juices which frequently focus on similar ingredients (lemon cayenne mixes, and superfood greens mixes), and certain other powdered beverages.
Our Renew Plant-Based Protein line competes in the ready to drink protein powder market which is highly fragmented. According to Grandview Research, the protein supplement industry was estimated to be $18.9 billion in 2020. Ready-to-drink and pre-formulated drinks were anticipated to demonstrate the fastest revenue growth in the segment. Renew Plant-Based Protein is differentiated amid this market with a short, understandable ingredient list.
Our Performance Mushroom and Mushroom Botanical supplements compete in the natural supplement market, which is highly fragmented with several peer companies.
Harvest Snacks and Other Food Items
Our Pili Nuts primarily compete in the $36.9 billion North American salty savory snack market, which is expected to grow at a 6.1% CAGR through 2028, per Grandview Research. Pili nuts are wild-harvested, sprouted in purified mountain water and slow dried to preserve their delicate flavor. Our award-winning, better-for-you alternative to competitor snack products is differentiated by flavor and nutrient-density.
Our Picky Bars primarily compete in the $8.4 billion snack bar market, which is expected to grow at 4.4% CAGR through 2023, per Market Reports World. Nutrition, Performance and Meal Replacement bars, which includes our Picky Bar products, make up 73% of the snack bar market.
Our Performance Granola and Performance Oatmeal compete in the $16.9 billion cereal market, which is expected to grow at a 4.2% CAGR through 2026, per Market Data Forecast. Top competitors are Bob’s Red Mill, Kellogg and General Mills.
Our Homemade Baking Mixes line competes in the domestic baking and mixes market, which grew to $8.3 billion in sales in 2020. 2020 represented a year of unprecedented gains in this market following a surge in at-home baking during the COVID-19 pandemic, and, according to Mintel, a significant share of U.S. adults plan to continue baking more often than they were in previous years. This trend bodes well for our better-for you alternatives, which offer a vegan and gluten-free option.
InstaFuel and Hot Chocolate with Functional Mushrooms
InstaFuel instant beverage products and our Hot Chocolate with Functional Mushrooms compete with other just-add-hot-water lines of instant coffee products and hot chocolate. The annual revenue generated from the instant coffee market in the U.S. was estimated to be $14.5 billion according to Statista in 2021. The hot chocolate market was $3.5 billion in the U.S. in 2021 according to Statista. Because it is being made with coconut sugar rather than refined sugars and includes functional mushrooms, we believe our hot chocolate product to be highly differentiated from legacy hot chocolate brands.
Whole Bean and Ground Coffee
According to IBIS Industry Statistics, the U.S. retail coffee market is estimated to be $47.4 billion in 2022. We believe that our line of high quality Peruvian organic roasts, as well as our more differentiated functional coffee blends, incorporating functional mushroom extracts, superfoods, and botanical adaptogens, have natural synergies for many buyers of our creamer products, and convenience of combined ordering on our online platform.
Supply Chain
Laird Superfood sources its raw materials from a variety of suppliers located both inside and outside the United States. The Company purchases substantial portions of its roasted coffee products from one supplier, coconut milk powder from two suppliers, and coconut water powder from one supplier. There are multiple sources of roasted coffee products, coconut milk powder and coconut water powder available to the Company, and management believes that the Company could find suitable replacements for these suppliers on substantially similar terms. In addition, the Company sources all of its Aquamin from a single supplier. Raw materials are shipped to our production facility in Sisters, Oregon where they are stored in our warehouse and production facility. For products we self-manufacture, these raw materials are then mixed and packaged into finished goods. Finished goods are then warehoused and shipped out of Sisters to both retail and wholesale customers, as well as distributors across the country. A minority of our products are manufactured and packaged offsite. The finished goods are then typically shipped by our co-packers to our warehouse in Sisters where we then ship them to end-customers.
Laird Superfood has a supplier code of conduct for the ethical sourcing of raw materials from within and outside the United States, which it provides to suppliers as part of its supplier-onboarding process.
Regulation
We are subject to a wide range of governmental regulations and policies. We are required to comply with the regulations and policies promulgated by the Environmental Protection Agency (“EPA”), the United States Department of Agriculture (the “USDA”), the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the Equal Employment Opportunity Commission ("EEOC"), the United States Department of Health and Human Services ("HHS"), the United States Department of Labor ("DOL"), and the Occupational Safety and Health Administration (“OSHA”), in addition to corresponding state and local agencies. In addition, the Federal Communications Commission (“FCC”) monitors claims made by companies, particularly with celebrity spokespeople. Our importers, packers, distributors, and suppliers are also subject to various laws and regulations relating to environmental protection and worker health and safety matters.
USDA National Organic Program and Similar Regulations
We are involved in the sourcing, manufacturing, supplying, processing, marketing, selling and distribution of organic food products and, as such, are subject to certain organic quality assurance standards. The Organic Foods Production Act mandates that the USDA develop national standards for organically produced agricultural products to assure consumers that those products marketed as organic meet consistent, uniform standards. We currently manufacture and distribute a number of organic products that are subject to the standards set forth in the Organic Foods Production Act and the regulations adopted thereunder by the USDA National Organic Program. Our organic products are certified organic by a USDA-accredited certifying agent, and we believe that we are in material compliance with the organic regulations applicable to our business.
Additionally, our organic products may be subject to various state regulations. Many states have adopted their own organic programs making the state agency responsible for enforcing USDA regulations for organic operations. However, state organic programs may also add more restrictive requirements due to specific environmental conditions or the necessity of production and handling practices in the state.
Food-Related Regulations
As a manufacturer and distributor of food products, we are also subject to a number of federal, state and local food-related regulations, including, but not limited to, the Federal Food, Drug and Cosmetic Act of 1938 (the “FDCA”) and regulations promulgated thereunder by the FDA. This comprehensive regulatory framework governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the U.S. The FDA:
•regulates manufacturing practices for foods through its current good manufacturing practices and regulations affecting food manufacturing;
•regulates ingredient safety; and
•prescribes the format and content of certain information required to appear on food product labels.
Some of the key food safety and food labeling regulations in the U.S. are discussed in the following sections. We are subject to the Food Safety Modernization Act of 2011, which, among other things, mandates that the FDA adopt preventative controls to be implemented by food facilities in order to minimize or prevent hazards to food safety. We are subject to numerous other federal, state and local regulations involving such matters as the licensing and registration of manufacturing facilities, enforcement by government health agencies of standards for our products, inspection of our facilities and regulation of our trade practices in connection with the sale of food products.
Food Safety Regulations
The FDA Food Safety Modernization Act (“FSMA”) enables the FDA to better protect public health by strengthening the food safety system. The law provides the FDA with new enforcement authorities and tools designed to achieve higher rates of compliance with prevention- and risk-based food safety standards and to better respond to and contain problems when they do occur.
We believe that we are in material compliance with the current regulations promulgated to implement FSMA that are applicable to our business. We are continuing to develop internal compliance policies and practices for those rules that have future compliance dates in order to ensure compliance by the required deadlines.
The FDA’s Foreign Supplier Verification Program requires that the United States owner or consignee of imported food take steps to verify that the foreign supplier of imported food is manufacturing the food in accordance with FDA requirements, that the importer understand what hazards the foreign supplier is controlling and how those hazards are controlled, and that this oversight program is documented. The regulation is being implemented using a tiered series of compliance dates based on the size of the U.S. importer and the foreign supplier. We have developed a program that we believe is in compliance with this regulation and are monitoring its ongoing implementation.
We are subject to numerous other federal, state and local regulations involving such matters as the licensing and registration of manufacturing facilities, food safety systems, transportation of food products, record keeping, enforcement by government health agencies of standards for our products, inspection of our facilities and regulation of our trade practices in connection with the sale of food products.
Food Labeling Regulations
The Company is subject to certain requirements relating to food labeling under the FDCA and corresponding FDA regulations as well as the Fair Packaging and Labeling Act enacted in 1967 and corresponding FTC regulations. Although the FTC and FDA share jurisdiction over claims made by manufacturers of food products (with the USDA also having jurisdiction over “organic” claims), the FDA retains primary jurisdiction over the labeling of food products whereas the FTC regulates advertising.
The FDA and FTC require that all food products be labeled to disclose the net contents, the identity of commodity, nutrition information, and the name and place of business of the product’s manufacturer, packer, or distributor. Both agencies also require that any claim on the product be truthful and not misleading. The FDA also has detailed regulations and requirements governing various types of claims about products’ nutritional value and wellness benefits, such as a nutrient content claims, health claims, and structure-function claims. Claims falling under these regulations must be phrased in specific ways to avoid misbranding the food. We believe we are in compliance with applicable FDA claims regulations.
Other state and local statutes and regulations may impose additional food labeling requirements. For instance, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly known as Proposition 65) requires, with a few exceptions, that a specific warning appear on any consumer product sold in California that contains a substance, above certain levels, listed by that state as having been found to cause cancer or birth defects. This law exposes all food and beverage producers to the possibility of having to provide warnings on their products.
Environmental Regulations
We are also subject to various U.S. federal, state and local environmental regulations. Some of the key environmental regulations in the U.S. include, but are not limited to, the following:
•Air quality regulations-air quality is regulated by the EPA and certain city/state air pollution control groups. We file emission reports annually.
•Waste treatment/disposal regulations-solid waste is either disposed of by a third-party or, in some cases, we have a permit to haul and apply the sludge to land. Agreements exist with local city sewer districts to treat waste at specified levels of Biological Oxygen Demand (“BOD”), Total Suspended Solids (“TSS”) and other constituents. This can require weekly/monthly reporting as well as annual inspection.
•Sewer regulations-we have agreements with the local city sewer districts to treat waste at specified limits of BOD and TSS. This requires weekly/monthly reporting as well as annual inspection.
•Hazardous chemicals regulations-we file various reports with local city/state emergency response agencies to identify potential hazardous chemicals being used in our facilities.
•Storm water-all our facilities are inspected annually and must comply with an approved storm water plan to protect water supplies.
We believe that we are in material compliance with existing environmental regulations applicable to our business. We do not expect the cost of our continued compliance with existing environmental regulations to have a material effect on our capital expenditures, earnings, cash flows or competitive position in the foreseeable future.
Consumer Protection Regulations
The FTC has the authority to regulate traditional and digital advertising for most types of consumer products, including our product offerings. The FTC has interpreted the Federal Trade Commission Act (the “FTC Act”) to prohibit unfair or deceptive acts or practices in commerce and oversees express and implied claims in advertising as well as certain promotional activities such as the use of social media influencers by advertising companies.
Our marketing, advertising, and promotional activities for our consumer products must adhere to the FTC Act’s requirement for truthful, non-misleading and adequately substantiated claims. If our advertising does not comply with FTC and similar state requirements, we could become subject to an investigation by the FTC or a consent decree, which could have a material adverse impact on our business and reputation.
We believe that we are in material compliance with existing consumer protection regulations applicable to our business. We do not expect the cost of our continued compliance with existing consumer protection regulations to have a material effect on our capital expenditures, earnings, cash flows or competitive position in the foreseeable future.
Employee Safety Regulations
We are subject to certain safety regulations, including OSHA regulations. These regulations require us to comply with certain manufacturing safety standards to protect our employees from accidents. We believe that we are in material compliance with all employee safety regulations applicable to our business.
As we work in a critical infrastructure industry as part of the nation’s food supply, we have implemented health and safety policies for all of our staff, including a transition to telework wherever reasonably possible; enacted strict sanitation protocols throughout our operations; and restricted access to visitors. Our top priority is the health and safety of our employees, and we are following published guidelines by the Centers for Disease Control and Prevention and other governmental health organizations in implementing procedures to protect our employees.
Intellectual Property
We have the right to the following material trademarks: Laird Superfood, Superfood Creamer, InstaFuel, Picky Bars, and Picky Bars Drizzle in the United States, and Laird Superfood in several international jurisdictions, including the European Union.
Human Capital Resources
Laird Superfood is a company built upon a strong vision, mission, and values set, all of which guide how we leverage our human capital in a positive way. Our culture is demonstrated internally via our regular recognition of employees and externally via activities such as our youth skill building partnerships and volunteer trail clean-up for the Deschutes segment of the Oregon Timber Trail.
As of December 31, 2021, we had 145 full-time employees, four part-time employees, and three temporary employees. None of these employees are represented by labor unions or covered by collective bargaining agreements. We believe that our employee relations are good.
We have developed and are executing on a complete program to manage the full employee life cycle, which begins with talent acquisition, focuses on robust onboarding and effective communication, includes a dynamic performance management program, utilizes engagement best practices, and is rounded out by career development and succession planning across our organization. We continuously strive to cultivate and support a highly engaged and productive workforce.
Talent Acquisition
We have a strong track record of directly recruiting top talent but we also partner with external professional recruiting firms and headhunters to enhance our recruiting efforts when appropriate. We have relationships with local and targeted colleges and universities to supply key talent in areas like Food Science and Quality Assurance. We have also developed a partnership with our community high school to offer skills training and career experience to establish a pipeline of talent for our front-line workforce.
Onboarding and Communication
In order to create a high-performing team, we establish a firm foundation of business understanding through a robust and cross-functional onboarding process. Every employee begins with a common understanding of our history, vision, mission, values, and goals and objectives, and we train employees regarding fundamentals such as workplace and food safety and their employee rights and benefits.
We actively seek opportunities for effective communication. Major communication efforts include quarterly all-hands meeting and a semi-monthly internal newsletter, which communicate content such as a CEO message, departmental updates, business priorities, and team member information. Departments meet individually and cross-functionally in a variety of ways. Managers are trained to hold regular one-on-one meetings to communicate on projects, tasks, feedback, and development. Individuals are encouraged to communicate through both formal methods and our Open-Door Policy.
Engagement
Our engagement program is centered upon an annual engagement survey, which serves as an annual benchmark and leads into a series of in-person focus groups to further understand and act upon our employee feedback. The focus groups allow us to drill down on employee feedback, give voice to our workforce, and create an annual action plan for increasing our engagement and productivity.
Performance Management
We have built a robust performance management program that seeks to combine best practices and innovation. Our program begins with goal/objective setting at the company, department, and individual level. The program incorporates regular, direct feedback in one-to-one conversations between managers and direct reports across all levels of the organization. A major component of our performance management program is our Annual Performance Evaluation that includes 360 assessments, ensuring performance is measured and enhanced not only by the manager’s assessment but through peer feedback and feedback on management as well. Any time of the year, employees can ask for or offer feedback transparently and easily through a shared platform in support of our feedback-focused performance management culture.
Talent Development
We conduct an annual talent review to identify top performers and high potential talent. This review informs our development activities and skill-building opportunities of our employees across all levels. We have a strong track record of internal growth and development with many examples of employees growing into new roles with increasing responsibility. We offer employees the opportunity to participate in external leadership development programs in person or online, as well through professional associations and conferences. Additionally, we offer internal training on targeted competencies such as giving and receiving feedback and effective goal setting.
Succession Planning
We have a formal succession planning process that is designed to work in concert with our talent review and performance management processes. A systematic and regular review of our internal talent is critical to meeting the future needs of our business. Our process allows us to both identify immediate and long-range succession planning to ensure our business can continue operating at the highest level.
Compensation and Benefits
Our total rewards program is designed to ensure our talented team is both fairly paid and rewarded for performance. We ensure market competitiveness and continually make smart adjustments where necessary with the goal of retaining top talent and ensuring equitable pay practices. We offer competitive benefits to ensure that our employees are provided for across the full range of employee rewards, including an equity grant program and an Employee Stock Purchase Plan ("ESPP"). We also offer employer paid medical and vision insurance, dental insurance, life and short-term disability insurance, a retirement savings plan.
Diversity and Inclusion
We believe diversity and inclusion enable the company to benefit from multiple points of view and broad thinking innovation. Diversity and inclusion better positions us to understand our customers’ needs and to ultimately succeed in our vision of providing better food for a better world. We approach diversity from the top-down, exemplified by our Board of Directors (the "Board") and our Executive Leadership Team: two of our seven directors are racially/ethnically diverse, and three of six members of our Executive Leadership Team are women. Our workforce is similarly gender diverse with 53% male and 47% female. Additionally, since 2020 we have partnered with special needs organizations to provide job opportunities, career education, and skills training in our facilities. Our hiring efforts include emphasis on employment of special needs individuals. We continue to seek opportunities for building an inclusive culture that encourages, supports, and celebrates the diverse voices of our world.
Corporate Information
We were formed as a limited liability company on June 25, 2015 under the laws of the State of Oregon, converted to a corporation under the laws of the State of Oregon on February 18, 2016, and converted to a corporation under the laws of the State of Delaware on July 3, 2018. Our principal executive offices are located at 275 W. Lundgren Mill Drive, Sisters, Oregon 97759. Our website is www.lairdsuperfood.com. We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or through our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding our filings, at www.sec.gov. We have included our website address in this Annual Report as an inactive textual reference only. Information contained on, or that can be accessed through, our website is not part of this Annual Report. You should not rely on any information contained or included on our website in making your decision whether to purchase our common stock.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS.
Our business is subject to various risks and uncertainties. Investors should carefully read the following factors as well as the cautionary statements referred to in “Cautionary Note Regarding Forward-Looking Statements” in herein. If any of the risks and uncertainties described below or elsewhere in this annual report on Form 10-K occur, the Company’s business, financial condition, or results of operations could be materially adversely affected.
Risks Relating to Our Limited Operating History, Financial Position and Capital Needs
We are an early stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We are an early stage company. We were formed and commenced operations in June 2015. We face all the risks faced by newer companies, including significant competition from existing and emerging competitors, many of which are established and have access to capital. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from an early stage company to a company capable of supporting larger scale commercial activities. If we are not successful in such a transition, our business, results and financial condition will be harmed.
We have not been profitable to date and we expect operating losses for the near future. During the year ended December 31, 2021, we achieved net sales of approximately $36.8 million and incurred operating losses of approximately $24.0 million. During the year ended December 31, 2020, we achieved net sales of approximately $25.8 million and incurred operating losses of approximately $12.9 million. Furthermore, to the extent our business strategy is successful, we must control overhead expenses and we may need to incur the expense of additional reliance on outside co-packers or hire additional personnel as needed. We may not succeed in expanding our customer base and product offerings and even if we do, we may never generate revenue that is significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress our value and could impair our ability to raise capital, expand our business, diversify our product offerings or even continue our operations.
We may need additional funding in order to grow our business.
To date, we have financed our operations through our initial public offering, private placements of our common and preferred stock and borrowings under loan agreements. We have devoted substantially all our financial resources and efforts to developing our products, workforce, and manufacturing capabilities. Our long-term growth and success are dependent upon our ability to generate cash from operating activities. There is no assurance that we will be able to generate sufficient cash from operations or access the capital we need to grow our business. Our inability to obtain additional capital could have a material adverse effect on our ability to fully implement our business plan and grow our business, to a greater extent than we can with our existing financial resources.
If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including lower demand for our products or due to other risks described herein, we may seek to sell common stock or preferred stock or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.
We may also consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:
•acquire or invest in complementary businesses or assets;
•increase our sales and marketing efforts and address competitive developments;
•provide for supply and inventory costs;
•fund development and marketing efforts of any future products or additional features to then-current products;
•acquire, license or invest in new technologies;
•finance capital expenditures and general and administrative expenses.
Our present and future funding requirements will depend on many factors, including:
•our ability to achieve revenue growth and improve gross margins;
•the cost of expanding our operations and offerings, including our sales and marketing efforts;
•the effect of competing market developments; and
•costs related to international expansion.
The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our shareholders could result. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and
privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights or grant licenses on terms that are not favorable to us.
Our rapid growth may not be indicative of our future growth, and our limited operating history may make it difficult to assess our future viability.
Our net sales grew to approximately $36.8 million for the year ended December 31, 2021, from $25.8 million for the year ended December 31, 2020. We expect that, in the future, as our revenue increases to higher levels, our revenue growth rate will decline. We also believe that growth of our revenue depends on several factors, including our ability to:
•expand our existing channels of distribution;
•develop additional channels of distribution;
•grow our customer base;
•cost-effectively increase online sales at our direct website and third-party marketplaces;
•effectively introduce new products;
•increase awareness of our brand;
•manufacture at a scale that satisfies future demand; and
•effectively source key raw materials.
We may not successfully accomplish any of these objectives. Since our inception in June 2015, we have not yet demonstrated the ability to manage rapid growth over a long period of time or achieve profitability at scale. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or had previously achieved profitability.
We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
Our rapid growth has placed and may continue to place significant demands on our organizational, administrative and operational infrastructure, including manufacturing operations, quality control, technical support and customer service, sales force management and general and financial administration. As we continue to grow, we will need to make significant investments in multiple facets of our company, including in sales, marketing, product development, information technology, equipment, facilities and personnel. We will also need to improve our operational, financial and management controls as well as our reporting systems and procedures.
If we are unable to manage our growth effectively, we may be unable to execute our business plan, which could have a material adverse effect on our business and our results of operations. Managing our planned growth effectively will require us to:
•maintain a low cost of customer acquisition relative to customer lifetime value;
•identify products that will be viewed favorably by customers;
•enhance our facilities and purchase additional equipment at our facility in Sisters, Oregon; and
•successfully hire, train and motivate additional employees, including additional personnel for our technological, sales and marketing efforts.
The expansion of our products and customer base may result in increases in our overhead and selling expenses. Any increase in expenditures in anticipation of future sales that do not materialize would adversely affect our profitability. In addition, if we are unable to effectively manage the growth of our business, the quality of our products may suffer and we may be unable to address competitive challenges, which would adversely affect our overall business, operations and financial condition.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act. We must design our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship or arrangement causing us to fail to make a required related party transaction disclosure. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Risks Relating to Our Business
Competition in the food and beverage retail industry, especially Internet-based competition, is strong and presents an ongoing threat to the success of our business.
The food and beverage retail industry is very competitive. In our online and wholesale business, we compete with food and beverage retail stores, supermarkets, warehouse clubs and other mass and general retail and online merchandisers, including Internet retailers, many of which are larger than us and have significantly greater capital resources than we do, selling both competitive products and retailing our own products, competing against our direct online business. We also compete with a number of natural, organic, and functional food and beverage producers.
We face significant competition from these and other retailers and producers. Any changes in their merchandising and operational strategies could negatively affect our sales and profitability. In particular, if natural, organic, and functional food and beverage competitors seek to gain or retain market share by reducing prices, we would likely be forced to reduce our prices on similar product offerings in order to remain competitive, which may result in a decrease in our market share, net sales and profitability and may require a change in our operating strategies.
We have been able to compete successfully by differentiating ourselves from our competitors by providing an expanding selection of natural, organic, and functional products, competitive pricing, convenience and exceptional customer service. If changes in consumer preferences decrease the competitive advantage attributable to these factors, or if we fail to otherwise positively differentiate our product offering or customer experience from our competitors, our business, financial condition, and results of operations could be materially and adversely affected.
Many of our current competitors have, and potential competitors may have longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technical capabilities, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to derive greater net sales and profits from their existing customer base, acquire customers at lower costs or respond more quickly than we can to new or emerging technologies and changes in consumer preferences or habits. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies (including but not limited to predatory pricing policies and the provision of substantial discounts), which may allow them to build larger customer bases or generate net sales from those customer bases more effectively than we are able to execute upon.
We expect competition in the natural, organic, and functional food and beverage industry, and in particular Internet-based competition, generally to continue to increase. We believe that our ability to compete successfully in this market depends upon many factors both within and beyond our control, including:
•the size and composition of our customer base;
•the number of products that we feature on our website;
•the quality and responsiveness of customer service;
•our selling and marketing efforts;
•the quality and price of the products that we offer;
•the convenience of the shopping experience that we provide;
•rapid changes affecting global, national, and regional economies;
•our ability to distribute our products and manage our operations; and
•our reputation and brand strength.
If we fail to compete successfully in this market, our business, financial condition, and results of operations would be materially and adversely affected.
We may not be able to successfully implement our growth strategy for our brand on a timely basis or at all.
We believe that our future success depends, in part, on our ability to implement our growth strategy of leveraging our existing brand and products to drive increased sales. However, we face many risks, uncertainties and difficulties frequently encountered by companies in their early stage of development, particularly companies in the rapidly evolving natural, organic, and functional food and beverage industry. Our ability to implement our growth strategy depends, among other things, on our ability to:
•develop, manufacture and introduce new and appealing products in our Laird Superfood brand and successfully innovate on our existing products;
•successfully compete in the product categories in which we choose to operate;
•attract and maintain a large customer base and develop and grow that customer base;
•increase awareness of our Laird Superfood brand and develop effective marketing strategies to ensure consumer loyalty;
•establish and maintain strategic relationships with key sales, marketing, manufacturing and distribution providers; and
•attract, retain and motivate qualified personnel.
We may not be able to implement this growth strategy successfully. Our planned marketing expenditures may not result in increased total sales or generate sufficient levels of consumer interest or brand awareness, and our high rates of sales and income growth may not be sustainable over time. Our sales and results of operations will be negatively affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.
Our Laird Superfood products are new, and our industry is rapidly evolving.
Some of our Laird Superfood products are new, such as our liquid Superfood Creamers, and are only in early stages of commercialization, and some products that are important to our growth strategy are in various stages of research and development, and have not yet been commercialized. We are not certain that these, or any other future products, will be developed to commercialization, sell as anticipated, be manufactured as anticipated, or be desirable to their intended markets. Also, some of our products may have limited uses and benefits, which may limit their appeal to consumers and put us at a competitive disadvantage. Developing new products and placing them into wholesale channels and into conventional and natural grocery environments is an expensive and time-consuming process, and if a product fails to sustain market acceptance or is unable to be manufactured as anticipated, the investment made in the product may be lost.
If our current or future Laird Superfood products fail in the development stage, or fail our customer’s expectation of quality, or if we do not achieve or sustain market acceptance, we could lose customers or could be subject to claims which could have a material adverse effect on our business, financial condition and operating results.
As is typical in a rapidly evolving industry, the development process and demand and market acceptance for recently introduced products are subject to a high level of uncertainty and risk. Because the market for our products is new and evolving, it is difficult to predict with any certainty the size of this market and its growth rate, if any, and costs of manufacturing as a product is developed. We cannot guarantee that we will be successful in developing new or existing products or manufacturing new products including through copackers, that our copackers perform as expected, or that a market for our products will develop or that demand for our products will be sustainable. If we fail to develop or manufacture new products, or the market for new products fails to develop, develops more slowly than expected or becomes saturated with competitors, our business, financial condition and operating results would be materially adversely affected.
We are subject to the risks associated with conducting business operations outside of the U.S., which could adversely affect our business.
We purchase our products from a variety of suppliers, including international suppliers. Our direct purchases from non-US suppliers represented a majority of our raw materials in 2021 and 2020, and we expect our international purchases may grow with time. Additionally, we may source from new non-US suppliers over time as raw material availability changes. We have previously had an international supplier cease doing business and default on certain delivery obligations to us, and our ability to monitor and control certain of our suppliers is limited due to their foreign locations, which limitations have been exacerbated by the Covid-19 pandemic. We also sell our products to consumers through our website and other online and physical distributors that are in foreign countries, and we may in the future enter into agreements with distributors in foreign countries to sell our products. All of these activities are subject to the uncertainties associated with international business operations, including:
•difficulties with foreign and geographically dispersed operations;
•having to comply with various U.S. and international laws;
•changes and uncertainties relating to foreign rules and regulations;
•tariffs, export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to import necessary materials;
•limitations on our ability to enter into cost-effective arrangements with distributors, or at all;
•fluctuations in foreign currency exchange rates;
•imposition of limitations on production, sale or export in foreign countries, including due to pandemic or quarantine;
•imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign processors or joint ventures;
•imposition of differing labor laws and standards;
•economic, political, environmental, health-related or social instability in foreign countries and regions;
•an inability, or reduced ability, to protect our intellectual property;
•availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;
•difficulties in recruiting and retaining personnel, and managing international operations;
•difficulties in enforcing contracts and legal decisions; and
•less developed infrastructure.
If we expand into other target markets, we cannot assure you that our expansion plans will be realized, or if realized, be successful. We expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed.
In addition, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials or other third parties for the purpose of obtaining or retaining business. While our policies mandate compliance with these anti-bribery laws, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, cash flows and financial condition.
Our results may be negatively affected by changes in foreign currency exchange rates.
Currently, substantially all of our international purchase and sales contracts are denominated in U.S. dollars, and generally do not guarantee long term pricing. As a result, a decrease in the value of the U.S. dollar relative to foreign currencies could increase our costs in dollars for the food products and ingredients that we import from other countries. In addition, an increase in the value of the U.S. dollar relative to foreign currencies could require us to reduce our selling price or risk making our products less competitive in international markets. The Company has not historically hedged foreign exchange risks.
A larger portion of our revenues may be denominated in other foreign currencies if we expand our international operations. Conducting business in currencies other than U.S. dollars could subject us to fluctuations in currency exchange rates that could negatively affect our revenues, cost of revenues and operating margins and result in foreign currency translation gains and losses.
Pandemics, epidemics, or disease outbreaks, such as the COVID-19 pandemic, could have a material adverse impact on our business including, among other things, consumption and trade patterns, our supply chain and production processes, each of which could materially affect our operations, liquidity, financial condition, and results of operations.
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, shelter-in-place orders, quarantines and travel bans, intended to control the spread of the virus. These restrictions, and future prevention and mitigation measures by governments and private entities, have had and are likely to continue to have an adverse impact on global economic conditions and consumer confidence and spending, which could materially adversely affect the supply of materials for our products as well as the demand for our products.
The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, including the emergence of variant strains of the virus, and the adoption of treatments such as vaccines, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, if this pandemic continues to be a severe worldwide health crisis, or in the regions from which we source our raw materials, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows.
In addition, a significant proportion of our products are produced at our manufacturing facility in Sisters, Oregon. If we are forced to scale back hours of production or close this facility in response to a pandemic, we expect our business, financial condition and results of operations would be materially adversely affected.
The actual or perceived effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as COVID-19, could negatively affect our operations, liquidity, financial condition and results of operations. Pandemics, epidemics or disease outbreaks may affect demand for our products because quarantines or other government restrictions on movement may cause erratic consumer purchase behavior. Governmental or societal impositions of restrictions on public gatherings, especially if prolonged, may have adverse effects on in-person traffic to retail stores, and in turn, our business. Even the perceived risk of infection or health risk may adversely affect traffic to our store-based retail customers and, in turn, our business, liquidity, financial condition and results of operations, particularly if any self-imposed or government-imposed restrictions are in place for significant time.
The spread of pandemics, epidemics or disease outbreaks such as COVID-19 may also disrupt our third-party business partners’ ability to meet their obligations to us, which may negatively affect our operations. These third parties include those who supply our ingredients, packaging, and other necessary operating materials, contract manufacturers, distributors, and logistics and transportation services providers. Ports and other channels of entry may be closed or operate at only a portion of capacity, as workers may be prohibited or otherwise unable to report to work and means of transporting products within regions or countries may be limited for the same reason, and the foreign locations of certain of our suppliers may result in greater or more prolonged restrictions than experienced by United States-based businesses. Our contract manufacturers’ ability to manufacture our products may be impaired by any material disruption to their employee staffing, procurement, manufacturing, or warehousing capabilities because of COVID-19 or similar outbreaks.
Our results of operations depend on, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Our ability to implement our innovation, advertising, display and promotion activities designed to maintain and increase our sales volumes on a timely basis may be negatively affected because of modifications to in-person promotional activities during the COVID-19 outbreak or similar situations. Retailers may also alter their normal inventory receiving and product restocking practices during pandemics, epidemics or disease outbreaks such as COVID-19, which may negatively affect our business.
Workforce limitations and travel restrictions resulting from pandemics, epidemics or disease outbreaks such as COVID-19 and related government actions may affect many aspects of our business. If a significant percentage of our workforce cannot work, including because of illness, travel or government restrictions in connection with pandemics or disease outbreaks, our operations may be negatively affected.
Adverse and uncertain economic conditions, such as decreases in per capita income and level of disposable income, increased unemployment or a decline in consumer confidence because of the COVID-19 outbreak or similar situations, could have an adverse effect on distributor, retailer and consumer demand for our products. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns. Prolonged unfavorable economic conditions, including because of COVID-19 or similar outbreaks, and any resulting recession or slowed economic growth, may have an adverse effect on our sales and profitability.
Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any pandemic, epidemic or disease outbreak, and third party actions taken to contain its spread and mitigate public health effects.
We may be unable to adequately protect our brand and our other intellectual property rights.
We regard our brand, customer lists, trademarks, domain names, trade secrets and similar intellectual property as critical to our success. We may rely on trademark, copyright and patent law, trade secret protection, agreements and other methods with our employees and others to protect our proprietary rights. We might not be able to obtain broad protection in the United States for all our intellectual property. The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights, and we may be unable to broadly enforce all our trademarks. Any of our patents, trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Our patent and trademark applications may never be granted. To date, the Company has not applied for patent protection on any of its technology. The process of obtaining patent protection is expensive and time-consuming, and we may be unable to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or intellectual property rights. Furthermore, our confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes and may not provide an adequate remedy in the event of unauthorized disclosure of such information.
We might be required to spend significant resources to monitor and protect our intellectual property rights. For example, we may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights or other proprietary rights or to establish the validity of such rights. However, we may be unable to discover or determine the extent of any infringement, misappropriation or other violation of our intellectual property rights and other proprietary rights. In addition, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially and adversely affect our business, financial condition, and results of operations.
In addition, our technology platform may use open source software. The use of such open source software may subject us to certain conditions, including the obligation to offer, distribute, or disclose our technology platform for no or reduced cost, make the proprietary source code subject to open source software licenses available to the public, license our software and systems that use open source software for the purpose of making derivative works, or allow reverse assembly, disassembly, or reverse engineering. We monitor our use of open source software to avoid subjecting our technology platform to conditions we do not intend. However, if our technology platform becomes subject to such unintended conditions, it could have an adverse effect on our business, financial condition, and results of operations.
We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop the infringement or the misappropriation of our intellectual property rights. The loss of the Laird Superfood brand or logo or other registered or common law trade names or a diminution in the perceived quality of products or services associated with the Company would harm our business. Our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.
Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
A food safety or quality issue that results in a product disruption such as a recall, health issue, or death of a consumer could harm our business.
The sale of products for human use and consumption involves the risk of injury or illness to consumers. Such injuries may result from inadvertent mislabeling, tampering by unauthorized third parties or product contamination or spoilage. Under certain circumstances, we have in the past been, and may be required to recall or withdraw products, suspend production of our products or cease operations, which may lead to a material adverse effect on our business. For example, in 2019 we recalled certain volumes of our Performance Mushroom supplement due to an overstatement of iron content on the product’s packaging. In addition, customers may stop placing or cancel orders for such products as a result of such events.
Even if a situation does not necessitate a recall or market withdrawal, product liability claims might be asserted against us. While we are subject to governmental inspection and regulations and believe our facilities and those of our co-packers and suppliers comply in all material respects with all applicable laws and regulations, if the consumption of any of our products causes, or is alleged to have caused, a health-related illness (such as listeria) or death to a consumer, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm could cause consumers to lose confidence in the safety and quality of our products. Moreover, claims or liabilities of this type might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. Although we maintain product liability and product recall insurance in an amount that we believe to be consistent with market practice, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a material adverse effect on our business, financial condition, results of operations or liquidity.
We may be subject to significant liability that is not covered by insurance.
Although we believe that the extent of our insurance coverage is consistent with industry practice, any claim under our insurance policies may be subject to certain exceptions, may not be honored fully, in a timely manner, or at all, and we may not have purchased sufficient insurance to cover all losses incurred. If we were to incur substantial liabilities or if our business operations were interrupted for a substantial period, we could incur costs and suffer losses. Inventory, equipment, and business interruption losses may not be covered by our insurance policies. Additionally, in the future, insurance coverage may not be available to us at commercially acceptable premiums, or at all.
We rely on independent certification for a number of our products.
We rely on independent third-party certification, such as certifications of our products as “organic” or “Non-GMO” (non-genetically modified organisms), to differentiate our products from others. We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified organic. For example, we can lose our “organic” certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In addition, all raw materials must be certified organic. The loss of any independent certifications could adversely affect our market position as an organic and natural products company, which could harm our business.
Our future results of operations may be adversely affected by the availability of Non-GMO and organic ingredients.
Our ability to ensure a continuing supply of Non-GMO and organic ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow organic crops, climate conditions, changes in national and world economic conditions, currency fluctuations and forecasting adequate need of seasonal ingredients.
The organic ingredients that we use in the production of our products (including, among others, coffee, coconut sugar, coconut milk powder, and extra virgin coconut oil) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water scarcity, temperature extremes, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions (including the potential effects of climate change) can lower crop yields and reduce crop size and crop quality, which in turn could reduce our supplies of Non-GMO and organic ingredients or increase the prices of Non-GMO and organic ingredients. If our supplies of Non-GMO and organic ingredients are reduced, we may not be able to find enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply product to our customers and adversely affect our business, financial condition and results of operations.
We also compete with other manufacturers in the procurement of Non-GMO and organic product ingredients, which may be less plentiful in the open market than conventional product ingredients. This competition may increase in the future if consumer demand for Non-GMO and organic products increases. This could cause our expenses to increase or could limit the amount of product that we can manufacture and sell.
Adverse weather conditions, fires, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.
Agricultural products are vulnerable to adverse weather conditions, including severe rains, drought and temperature extremes, floods and windstorms, which are quite common but difficult to predict. Agricultural products also are vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. Unfavorable growing conditions caused by these factors can reduce both crop size and crop quality and, in extreme cases, entire harvests may be lost. Additionally, adverse weather or natural disasters, including fires, earthquakes, winter storms, droughts, or volcanic events, could impact our manufacturing and business facilities in Sisters, Oregon, which could result in significant costs and meaningfully reduce our capacity to fulfill orders and maintain normal business operations. Sisters, Oregon is located in an area subject to seasonal forest fires and fire risk. These factors may result in lower sales volume and increased costs due increased costs of products. Incremental costs, including transportation, may also be incurred if we need to find alternate short-term supplies of products from alternative areas. These factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.
Climate change may negatively affect our business and operations.
There is concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as coconut milk powder, organic coconut sugar, organic extra virgin coconut oil and freeze dried coconut water. As a result of climate change, we may also be subjected to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations, as well as the agricultural businesses of our suppliers, which rely on the availability and quality of water.
Our production equipment may be damaged, adversely affecting our ability to meet consumer and wholesale demand.
A significant proportion of our products are produced at our manufacturing facility in Sisters, Oregon. A significant disruption at that facility or to any of our key production equipment, even on a short-term basis, could impair our ability to timely produce and ship products, which could have a material adverse effect on our business, financial position and results of operations. In the past, we have had manufacturing delays due to damaged and malfunctioning equipment and cannot fully insure against the effects of such delays on our business. Our manufacturing operations are vulnerable to interruption and damage from natural and other types of disasters, including earthquake, fire, floods, volcanic events, droughts, environmental accidents, winter storms, power loss, disease outbreaks or pandemics such as the COVID-19 pandemic, communication failures and similar events. If any disaster were to occur at our facility, our ability to operate our business at our facilities would be seriously impaired.
We rely on a small number of suppliers to provide our raw materials, and our supply chain may be interrupted and prevent us from obtaining the necessary materials we need to operate.
We rely on suppliers and vendors to meet our high-quality standards and supply products in a timely and efficient manner. There is, however, no assurance that quality natural and organic products will continue to be available to meet our specific and growing needs. This may be due to, among other reasons, problems with our suppliers’ and vendors’ businesses, finances, labor relations, ability to export materials, international shipping delays, product quality issues, costs, production, crop yields, insurance, and reputation, as well as disease outbreaks or pandemics such as the COVID-19 pandemic, acts of war, terrorism, natural disasters, fires, earthquakes, flooding or other catastrophic occurrences. If for any reason our suppliers or vendors became unable or unwilling to continue to provide services to us, this would likely lead to a temporary interruption in our ability to import our products until we found another entity that could provide these services. Failure to find a suitable replacement, even on a temporary basis, would have a material adverse effect on our ability to meet our current production targets, make it difficult to grow and would have an adverse effect on our results of operations.
In addition, our top suppliers are in a similar geographic area, which increases the risk of significant supply disruptions from local and regional events. Vietnam, Indonesia, and Sri Lanka geographically accounted for approximately 64% of our total raw materials and packaging purchases for the year ended December 31, 2021. Vietnam, Indonesia, China, and Sri Lanka geographically accounted for approximately 69% of our total raw materials and packaging purchases for the year ended December 31, 2020. In the event that our supply from our current suppliers is interrupted, our operations may be interrupted resulting in lost revenue, added costs and distribution delays that could harm our business and customer relationships until we are able to identify and enter into an agreement with one or more alternative suppliers.
As a result of this concentration in our supply chain, our business and operations would be negatively affected if any of our key suppliers were to experience significant disruption affecting the price, quality, availability or timely delivery of their products. In the
event that our supply from our current suppliers is interrupted, our operations may be interrupted resulting in lost revenue, added costs such as, without limitation, shipping costs, and distribution delays that could harm our business and customer relationships until we are able to identify and enter into an agreement with one or more alternative suppliers.
Our future results of operations may be adversely affected by volatile commodity costs.
Many aspects of our business could be directly affected by volatile commodity costs. Agricultural commodities and raw materials, including coconut milk powder, organic coconut sugar, organic extra virgin coconut oil, freeze dried coconut water and Aquamin, are the principal inputs used in our products. These items, as well as a growing list of new ingredients as we expand our product portfolio, are subject to price volatility which can be caused by commodity market fluctuations, inflation, crop yields, seasonal cycles, weather conditions (including the potential effects of climate change), temperature extremes and natural disasters (including floods, droughts, water scarcity, frosts, earthquakes and hurricanes), pest and disease problems, changes in currency exchange rates, imbalances between supply and demand, natural disasters and government programs and policies among other factors. Volatile fuel costs translate into unpredictable costs for the products and services we receive from our third-party providers including, but not limited to, distribution costs for our products and packaging costs. While we may seek to offset the volatility of such costs with a combination of cost savings initiatives, operating efficiencies and price increases to our customers, we may be unable to manage cost volatility. If we are unable to fully offset the volatility of such costs, our financial results could be adversely affected.
We are reliant on Laird Hamilton and Gabrielle Reece to develop new products and market our brand.
Many of the Company’s current products and planned future products are based on the lifestyle of Mr. Hamilton and Ms. Reece. Pursuant to the License and Preservation Agreement, dated May 26, 2020, by and among Mr. Hamilton, Ms. Reece and the Company, Mr. Hamilton and Ms. Reece granted us a limited, exclusive license to use 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. Any use of the licensed property that is in accordance with the historical standard of use and is not objected to by Mr. Hamilton or Ms. Reece within 30 days of the first intra-company disclosure of a bona-fide intent to make such use is deemed approved. Any new use of the licensed property shall satisfy the historical standard of use and shall be primarily directed to the advertising, promotion or marketing of the Company’s products and services. If Mr. Hamilton or Ms. Reece object to a proposed use of the licensed property, the Company may be prevented from implementing our business plan in a timely manner, or at all, outside of previously approved usages or usages consistent with certain pre-approved product guidelines. Also, the Company depends on the positive image and public popularity of Mr. Hamilton and Ms. Reece to maintain and increase brand recognition. Customers may be drawn to our products because of their involvement in our Company as celebrities. If Mr. Hamilton or Ms. Reece’s image, reputation or popularity is materially and adversely affected, this could negatively affect the marketability and sales of our products and the Company.
Laird Hamilton’s and Gabrielle Reece’s involvement with other business and personal ventures might interfere with their ability to fully engage with their Company obligations.
Mr. Hamilton and Ms. Reece may engage in outside business activities from time to time, including the XPT Extreme Performance Training brand, Laird Apparel and various endorsement opportunities. These activities may interfere with the respective time and attention Mr. Hamilton and Ms. Reece can devote to the Company’s business and affairs, which could have a material and adverse effect on the business. Also, we have entered only limited noncompetition and nonsolicitation agreements with Mr. Hamilton and Ms. Reece, which makes us vulnerable to competition from them. These conflicts of interest may result in the loss of business opportunities, which may materially and adversely affect our prospects, business advantage, financial condition and results of operations.
We are dependent on our management team, and the loss of any key member of this team may prevent us from implementing our business plan in a timely manner, or at all.
Our success depends largely upon the continued services of our executive officers and other key personnel, particularly Jason Vieth, Laird Hamilton, Valerie Ells, and Scott McGuire. Our executive officers or key personnel could terminate their employment with us at any time without penalty. Mr. Hamilton and certain other of our executive officers frequently participate in a wide variety of activities, including extreme mountain, desert, snow and ocean sports, motorsports, which have in the past resulted in serious injuries to members of our management team, and subject them to a significant risk of serious injury or death. In addition, we do not maintain key person life insurance policies on any of our employees. The loss of one or more of these executive officers or key personnel could seriously harm our business and may prevent us from implementing our business plan in a timely manner, or at all.
If the reputation of our brand erodes significantly, it could have a material impact on our results of operations.
Our financial success is directly dependent on the consumer perception of our brand. The success of our brand may suffer if our marketing plans or product initiatives do not have the desired impact on our brand’s image or its ability to attract consumers. Further, our results could be negatively affected if our brand suffers substantial damage to its reputation due to real or perceived quality issues, adverse publicity about our products, packaging or ingredients, our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, the products becoming unavailable to consumers, or perception that the Company or any of its executives or Mr. Hamilton or Ms. Reece is perceived to act in an irresponsible or objectionable manner. In addition, it is possible for such information, misperceptions and opinions to be shared quickly and disseminated widely due to the continued growing use of social and digital media. Negative posts or comments about the Company or any of its executives or Mr. Hamilton or Ms. Reece, or our products or packaging on social or digital media could seriously damage our brands and reputation.
We rely on retailers and distributors for a substantial portion of our sales, and our failure to maintain and further develop our sales channels could harm our business.
We sell a substantial portion of our products through retailers such as Costco, Natural Grocers, CVS, Kroger and REI, distributors such as United Natural Foods, Inc. and KeHE Distributors, and online through Amazon.com, and we depend on these third parties to sell our products to consumers. The largest retailer of our products for the years ended December 31, 2021 and 2020 was Costco, which accounted for 13% and 23% of our total net sales, respectively. In addition, net sales through Amazon.com accounted for 16% and 21% of our total net sales for the years ended December 31, 2021 and 2020, respectively. No other retailer or distributor represented more than 10% of our total net sales in 2021 or 2020.
The loss of, or business disruption at, one or more of these retailers or distributors or a negative change in our relationship with Costco or Amazon.com or a disruption to Amazon.com as a sales channel could have a material adverse effect on our business. If we do not maintain our relationship with existing retailers and distributors or develop relationships with new retailers and distributors, the growth of our business may be adversely affected, and our business may be harmed.
We are not the exclusive seller of our products into online channels, such as Amazon.com, and face competition in that channel from resellers of our products. Further, the terms of our agreements with these distributors allow us to plan for the future, maintain growth and strengthen our relationships with key customers. If we are required to obtain additional or alternative distribution agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish markets necessary to expand the distribution of our products successfully.
We depend upon internet search engines and other providers of digital advertising to attract a significant portion of our potential customers to our website, and any change in the prominence of our website in either paid or algorithmic search result listings or an increase in purchasing digital ads could cause the number of visitors to our website and our revenue to decline.
We depend in significant part on various internet search engines, such as Google, and other providers of digital advertising to direct a significant number of potential customers to our website. Search websites typically provide two types of search results, algorithmic and paid listings. Algorithmic, or organic, listings are determined and displayed solely by a set of formulas designed by search companies. Paid listings can be purchased and then are displayed if particular words are included in a user’s internet search. Placement in paid listings is generally not determined solely on the bid price, but also takes into account the search engines’ assessment of the quality of the website featured in the paid listing and other factors. We rely on both algorithmic and paid search results, as well as digital advertising on other websites and through other providers, to direct a substantial share of the visitors to our website.
Our ability to maintain the number of visitors to our website from internet search websites and other websites is not entirely within our control. For example, internet search websites frequently revise their algorithms in an attempt to optimize their search result listings or to implement their internal standards and strategies. Changes in the algorithms could cause our website to receive less favorable placements, which could reduce the number of users who visit our website. We have experienced and continue to experience fluctuations in the search result rankings for our website.
In addition, the prominence of the placement of our advertisements is in part determined by the amount we are willing to pay for the advertisement. We bid against our competitors for the display of paid search engine advertisements and some of our competitors have greater resources with which to bid and better brand recognition than we have. Additionally, as we increase the number of third-party distributors of our products, they have occasionally targeted similar individuals or use similar key words. If competition for the display of paid advertisements in response to search terms related to our online services increases, our online advertising expenses could rise significantly, and we may be required to reduce the number of our paid search advertisements. If we reduce our advertising with search engines, our consumer traffic may significantly decline, or we may be unable to maintain a cost-effective search engine marketing program.
On October 20, 2020, the United States Department of Justice brought an antitrust lawsuit against Google claiming that Google improperly uses its monopoly over internet search to impede competition and harm consumers. Our cost of advertising on Google may remain high if Google’s monopoly over internet searches is not prevented and competitive search engines are not allowed to compete. Alternatively, if Google is required because of this lawsuit to split up the company or sell assets, there is no assurance this will decrease advertising costs and it may lead to increased costs due to an increased number of service providers who obtain oligopoly power to control advertising costs. Although this lawsuit may lower our advertising costs, there is risk that it may not and would lead to increased costs which would reduce our profitability and harm our business.
Other factors, such as search engine technical difficulties, search engine technical changes and technical or presentation changes we make to our website, could also cause our website to be listed less prominently in algorithmic search results. Any adverse effect on the placement of our website in search engine results could reduce the number of users who visit our website and drive up the cost of customer acquisition. If visits to our website decrease, our revenue may decline, and we may need to resort to more costly sources to acquire new customers and such decreased revenue and/or increased expense could materially and adversely affect our business and profitability.
Our customer acquisition costs may increase and our customer lifetime values may decrease, harming our margins and results.
Our business is dependent upon the success of our sales and customer acquisition and retention strategies, and our marketing efforts are focused on building our brand and acquiring new customers. As our business grows, our marketing dollars may become less effective as we run out of sources of free or low-cost traffic to our websites and are compelled to use less proprietary and more competitive sources of customer acquisition. In addition, customers acquired through more competitive channels may have lower retention rates compared to customers acquired through low-cost channels such as the social media presences of Mr. Hamilton and Ms. Reece, leading to lower customer lifetime values. To the extent our customer acquisition costs increase or our lifetime customer values decrease, our margins and results of operations will be harmed.
Our customers generally are not obligated to continue purchasing products from us.
Many of our customers are individuals that buy from us under purchase orders, and we generally do not have long-term agreements with or commitments from these customers for the purchase of products. We cannot provide assurance that our customers, including customers that participate in our subscription programs, will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Decreases in our customers’ sales volumes or orders for products supplied by us may have a material adverse effect on our business, financial condition or results of operations.
Failure to maintain sufficient internal production capacity, source appropriate external production capacity, or to enter into third-party agreements on terms that are beneficial for us may result in our inability to meet customer demand and/or may increase our operating costs and capital expenditures.
We intend to rely on internal production capacity and, to a lesser extent, third-party co-packers to fulfill our growing production needs. We have plans to expand our own production facilities, but in the short-term may need to increase our reliance on third parties to provide production and supply certain services, commonly referred to as “co-packing” agreements, for a number of our products, including our liquid products. A failure by us or our co-packers to comply with food safety, environmental, or other laws and regulations, or to produce products of the quality and taste-profile we expect, or with efficiency and at costs we expect, may also disrupt our supply of products. In addition, we may experience increased distribution and warehousing costs due to capacity constraints resulting from our growth. We anticipate needing to enter additional co-packing, warehousing or distribution agreements in the future, and we can provide no assurance that we would be able to find acceptable third-party providers or enter into agreements on satisfactory terms or at all. In addition, we may need to expand our internal capacity, which could increase our operating costs and could require significant capital expenditures. If we cannot maintain sufficient and satisfactory production, warehousing and distribution capacity, either internally or through third party agreements, we may be unable to meet customer demand and/or our manufacturing, distribution and warehousing costs may increase, which could negatively affect our business.
If we face labor shortages or increased labor costs, our results of operations and our growth could be adversely affected.
Labor is a significant component of the cost of operating our business. Our ability to meet our labor needs while controlling labor costs is subject to external factors, such as employment levels, prevailing wage rates, minimum wage legislation, changing demographics, health and other insurance costs and governmental labor and employment requirements. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, and we would experience significant turnover, while increasing our wages could cause our earnings to decrease. Our business is also located in a small metropolitan area that has limited access to skilled and unskilled labor. If we face labor shortages or increased labor costs because of increased competition for employees from our competitors and other industries, higher employee-turnover rates, or increases in the federal- or state-mandated minimum wage, change in exempt and non-exempt status, or other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance), our operating expenses could increase and our business, financial condition and results of operations could be materially and adversely affected.
Our financial success depends on our ability to successfully predict changes in consumer preferences and develop successful new products and marketing strategies in response.
Consumer preferences evolve over time and the success of our products depends on our ability to identify the tastes and dietary habits of consumers and to offer products that appeal to their preferences and address their concerns. We must also adapt our marketing strategies to these fluid consumer preferences as they develop. Recent trends in consumer preferences that may impact us include:
•dietary trends and increased attention to nutritional values, such as sugar, fat, protein, fiber, carbohydrate, or calorie content;
•concerns about obesity and the health effects of specific ingredients and nutrients, such as sugar and other sweeteners, ingredients derived from genetically modified organisms (GMOs), gluten, grains, dairy, soybeans, nuts, oils, vitamins, fiber, and minerals; and
•increasing awareness of the environmental and social effects of product production, including agricultural production by food manufacturers and their suppliers.
The development and introduction of new products could require substantial research and development and other expenditures, including capital investment and marketing and warehouse slotting investments. In addition, the success of our innovation and product development efforts depends upon our ability to anticipate changes in consumers’ preferences, the technical capability of our research and development staff in developing, formulating and testing new products, and our ability to introduce the resulting products in a timely manner. If our products fail to meet consumer preferences, or we fail to introduce new and improved products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits through product innovations and extensions will be less successful.
Consumer preferences for natural and organic food products are difficult to predict and may change.
Our business is primarily focused on sales of non-GMO, organic and natural products, and our success depends, in part, on our ability to offer products that anticipate the tastes and dietary habits of consumers and appeal to their preferences on a timely and affordable basis. A significant shift in consumer demand away from our products or our failure to maintain our current market position, could reduce our sales and harm our business. Consumer trends change based on a number of possible factors, including nutritional values, a change in consumer preferences or general economic conditions. Additionally, there is a growing focus among some consumers to buy local food products in an attempt to reduce the carbon footprint associated with transporting food products from longer distances, which could result in a decrease in the demand for food products and ingredients that we import from other countries or transport from remote processing locations or growing regions. Further, failures by us or our competitors to deliver quality products could erode consumer trust in the organic certification of foods. A significant shift in consumer demand away from our products would reduce our market share, harming our business.
Technology failures or security breaches could disrupt our operations and negatively impact our business.
In the normal course of business, we rely on information technology systems to process, transmit, and store electronic information. For example, our production and distribution facilities and inventory management utilize information technology to increase efficiencies and limit costs. Information technology systems are also integral to the reporting of our results of operations. Furthermore, a significant portion of the communications between, and storage of personal data of, our personnel, customers, and suppliers depends on information technology, including social media platforms.
Our information technology systems may be vulnerable to a variety of interruptions, as a result of our enterprise platform or due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, cyber-attacks, and other security issues. These events could compromise our confidential information, impede or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigation and reputational damage. Furthermore, if a breach or other breakdown results in disclosure of confidential or personal information, we may suffer reputational, competitive and/or business harm.
To date, we have experienced a break-in against one of our social media accounts which was quickly remediated, and a third party that processes payments for our website experienced a data breach in which certain customer data (but not credit card numbers, Social Security numbers or similar sensitive personal information) may have been compromised, but We have not experienced a material breach of cyber security, either directly or indirectly. While we have implemented administrative and technical controls, maintained information security training programs, maintained external reviews, and taken other preventive actions to reduce the risk of cyber incidents and protect our information technology, they may be insufficient to prevent physical and electronic break-ins, cyber-attacks, ransomware attacks, or other security breaches to our computer systems, which could have a material adverse effect on our business, financial condition or results of operations. Similarly, while we currently maintain insurance that is intended to cover security and information system incidents, the insurance may not cover all or any of the losses, types of claims, damages to our brand, or damages to our reputation due to the specific facts and circumstances surrounding the event, and such insurance may not remain available on
advantageous terms or at all.
Economic downturns could limit consumer demand for our products and negatively affect our sales and profitability.
The premium organic and natural food industry is sensitive to national and regional economic conditions and the demand for the products that we distribute may be adversely affected from time to time by economic downturns that impact consumer spending, including discretionary spending. Future economic conditions such as employment levels, business conditions, housing starts, interest rates, inflation rates, energy and fuel costs and tax rates could reduce consumer spending or change consumer purchasing habits. Among these changes could be a reduction in the number of natural and organic products that consumers purchase where there are non-organic alternatives, given that many premium natural and organic products, and particularly premium natural and organic foods, often have higher retail prices than do their non-organic counterparts.
The failure to successfully integrate newly acquired products or businesses could negatively impact our profitability.
From time to time, we may consider opportunities to acquire other products or businesses that may expand the breadth of our markets or customer base. The success of future mergers and acquisitions will be dependent upon our ability to effectively integrate the acquired products and operations into our business. Integration can be complex, expensive and time-consuming. The failure to successfully integrate products or businesses in a timely and cost-effective manner could materially adversely affect our business, prospects, results of operations and financial condition. The diversion of our management’s attention and any difficulties encountered in any integration process could also have a material adverse effect on our ability to manage our business. Risks associated with strategic mergers and acquisitions include, but are not limited to, integrating manufacturing, distribution, sales, accounting, financial reporting and administrative support activities, securing information and technology systems, transferring customer data, and managing new business models, new categories, and new territories. In addition, the integration process could result in the loss of key employees, the disruption of ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, or policies, any of which could adversely affect our ability to maintain the appeal of our brand and our relationships with customers, employees or other third parties or our ability to achieve the anticipated benefits of such acquisitions and could harm our financial performance. We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired products or businesses. Additionally, an additional risk inherent in any acquisition is that we fail to realize a positive return on our investment.
Regulatory Risks
Our products and operations are subject to government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could adversely affect our business and results of operations.
We are affected by a wide range of governmental laws and regulations. Examples of regulatory agencies influencing our operations include the United States Department of Agriculture (the “USDA”), the Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”), and the Environmental Protection Agency, among others. These agencies regulate, among other things, with respect to our products and operations:
•design, development and manufacturing;
•testing, labeling, content and language of instructions for use and storage;
•product safety;
•marketing, sales and distribution;
•record keeping procedures;
•advertising and promotion;
•recalls and corrective actions; and
•product import and export.
These laws and regulations affect various aspects of our business. For example, certain food ingredient products manufactured by Laird Superfood are regulated under the United States Federal Food, Drug, and Cosmetic Act (“FDCA”), as administered by the FDA. Under the FDCA, pre-marketing approval by the FDA is required for the sale of a food ingredient which is a food additive unless the substance is generally recognized as safe, under the conditions of its intended use by qualified experts in food safety. We believe that most food ingredients in our products are generally recognized as safe. However, this status cannot be determined until actual formulations and uses are finalized. As a result, we may be adversely affected if the FDA determines that our food ingredient products do not meet the criteria for generally recognized as safe.
The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. The failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions and third-party lawsuits such as:
•warning letters;
•fines;
•injunctions;
•civil penalties and civil lawsuits;
•termination of distribution;
•recalls or seizures of products;
•delays in the introduction of products into the market; and
•total or partial suspension of production.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition and results of operations. We may also be required to take corrective actions, such as installing additional equipment or taking other actions, each of which could require us to make substantial capital expenditures. In addition, we could be required to indemnify our employees in connection with any expenses or liabilities that they may incur individually in connection with regulatory action against them. As a result, our future business prospects could deteriorate due to regulatory constraints, and our profitability could be impaired by our obligation to provide such indemnification to our employees.
The FDA may also take issue with the name “Laird Superfood” or any derivative name, as “superfood” is, to our knowledge, still undefined by regulatory agencies. In addition to any regulatory costs, if the Company were required to change its name, there would likely be, or could be, among other results, a negative effect on the Company’s branding and customer perception.
Our reputation could suffer from real or perceived issues involving the labeling or marketing of our products.
Products that we sell carry claims as to their origin, ingredients or health benefits, including, by way of example, the use of the term “natural”, “functional”, or “healthy”, or similar synonyms or implied statements relating to such benefits. Although the FDA and the USDA each has issued statements regarding the appropriate use of the word “natural,” there is no single, United States government regulated definition of the term “natural” for use in the food industry, which is true for many other adjectives common in the better-for-you and functionally-focused food industry. The resulting uncertainty has led to consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against several food companies that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled “natural” but that nonetheless contain synthetic ingredients or components. Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Any of these events could adversely affect our reputation and brand and decrease our sales, which would have a material adverse effect on our business, financial condition and results of operations.
Similarly, certain USDA regulations set forth the minimum standards producers must meet in order to have their products labeled as “certified organic,” and we currently manufacture several organic products that are covered by these regulations. While we believe our products and our supply chain are in compliance with these regulations, changes to food regulations may increase our costs to remain in compliance. We could lose our “organic” certification if a facility becomes contaminated with non-organic ingredients, if we do not use raw materials that are certified organic, or if key ingredients used in our products are no longer allowed to be used in food certified as “organic.” The loss of our “organic” certifications could materially and adversely affect our business, financial condition or results of operations.
In addition, the USDA has proposed a rule requiring disclosure of the use of genetic engineering in manufacturing a product or an ingredient used in a product. The rule has not been finalized, and we are unable to predict with certainty what the final requirements will be. If the USDA issues bioengineering disclosure regulations inconsistent with our practices, the resulting changes in labeling could adversely affect customer acceptance of our product and materially and adversely affect our business.
Litigation and regulatory enforcement concerning marketing and labeling of food products could adversely affect our business and reputation.
The marketing and labeling of any food product in recent years has brought increased risk that consumers will bring class action lawsuits and that the FTC and/or state attorneys general will bring legal action concerning the truth and accuracy of the marketing and labeling of the product. Examples of causes of action that may be asserted in a consumer class action lawsuit include fraud, unfair trade practices and breach of state consumer protection statutes. The FTC and/or state attorneys general may bring legal action that seeks removal of a product from the marketplace and impose fines and penalties. Even when unmerited, class claims, action by the FTC or state attorneys general enforcement actions can be expensive to defend and adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image, which could have a material and adverse effect on our business, financial condition or results of operations.
We may be subject to specific FTC endorsement and/or testimonial regulations that would interfere with our advertising, marketing and labeling strategies.
The FTC revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Guides”), which became effective on December 1, 2009. Although the Guides are not binding, they explain how the FTC interprets Section 5 of the FTC Act’s prohibition on unfair or deceptive acts or practices. Consequently, the FTC could bring a Section 5 enforcement action based on practices that are inconsistent with the Guides. Under the revised Guides, advertisements that feature a consumer and convey his or her atypical experience with a product or service are required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides, which allowed advertisers to describe atypical results in a testimonial as long as they included a disclaimer such as “results not typical,” the revised Guides no longer contain such a safe harbor. The revised Guides also add new examples to illustrate the long-standing principle that “material connections” between advertisers and endorsers (such as payments or free products), connections that consumers might not expect, must be disclosed. While we do request that public persons who we engage as paid advertisers, or provide samples of product to, disclose their relationship with us prior to sharing on social media or other endorsement, we cannot ensure all recipients comply with this request and we do not regularly monitor what they post on social media. If we were held responsible for the content of their posts on social media or other endorsements, we could be forced to alter our practices. We have continually adapted our marketing efforts to be compliant with the revised Guides. However, it is possible that our use, and that of our employees, of testimonials in the advertising and promotion of our products will be significantly impacted and therefore might negatively affect our sales.
We may face scrutiny from evolving state regulations concerning health, safety, our supply chain and marketing.
In addition to the federal regulatory issues listed above, there are a growing number of state regulations that might impair our ability to operate and avoid interruption. For example, California currently enforces legislation commonly referred to as “Proposition 65” that requires that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity. Although we seek to comply with the requirements of Proposition 65, as well as to educate our customers regarding the substance of Proposition 65 and the relative metals contents in various natural foods, there can be no assurance that we will not be adversely affected by litigation or other actions relating to Proposition 65 or future legislation that is similar or related thereto. Also, the Transparency in Supply Chains Act of 2010 in California requires us to audit our vendors with respect to risks of human trafficking and slavery and mitigate these risks in our operations. Any failure to disclose issues or other non-compliance could subject us to action by the California Attorney General or other regulatory authorities. Increased compliance costs associated with operating in California and other states could adversely affect our business, financial condition and results of operations.
Risks Relating to the Ownership of Our Common Stock
The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the price you purchased them.
The market price of our common stock has fluctuated and may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•overall performance of the equity markets;
•the development and sustainability of an active trading market for our common stock;
•our ability maintain our listing on the NYSE American;
•our operating performance and the performance of other similar companies, or companies in the premium organic and natural food industry;
•changes in recommendations by securities analysts that elect to follow the Company;
•press releases or other public announcements by us or others, including our filings with the SEC;
•changes in expectations related to consumer preferences in the premium organic and natural food industry;
•recruitment or departure of key personnel;
•changes in our capital structure, such as future issuances of debt or equity securities;
•regulatory developments in the United States or foreign countries;
•the economy as a whole, market conditions in our industry, and the industries of our customers;
•the expiration of market standoff or contractual lock-up agreements; and
•the size of our market float.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many small-cap companies. Stock prices of many small-cap companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. These extreme market fluctuations have been accompanied by reports of strong and atypical retail investor interest, including on social media and online forums, and it is unclear how long this volatility will last. Due to our customer basis, online presence, and founders’ reputation, among other factors, our stock may be subject to similar market volatility in the future not necessarily related to the performance of our business. In the past, shareholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
We will incur increased costs in connection with operating as a public company and our management will be required to devote substantial time to compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE American and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations have made it more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs, however such costs may be material to our business.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us and our business. If analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price for our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause the price and trading volume for our common stock to decline.
The concentration of our stock ownership limits our shareholders’ ability to influence corporate matters.
Our officers and directors continue to have significant influence over us through their ownership of shares of our common stock. As of December 31, 2021, our directors and officers beneficially own shares of our common stock which represented approximately 14% of the voting power of our outstanding capital stock. As a consequence, our directors and officers will have the power to affect our management and affairs and overall matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our Company or our assets, for the foreseeable future. This concentrated control limits or restricts our shareholders’ ability to influence corporate matters and, as a result, we may take actions that our shareholders do not view as beneficial. As a result, the market price of our common stock could be adversely affected.
Economic and business factors could result in impairment of goodwill and intangible assets.
Current and future economic conditions, as well as the other risks noted in this Item 1A, may adversely impact our ability to attract new customers, retain existing customers, maintain sales volumes and maintain margins. As discussed under “Critical Accounting Policies” included elsewhere in this report, these events could materially reduce our profitability and cash flows which could, in turn, lead to impairment of our goodwill and intangible assets. Furthermore, significant negative industry or general economic, market or other trends, disruptions to our business and unexpected significant changes or planned changes in our use of goodwill and intangible assets. Any future impairment could have a material adverse effect on our business, financial condition, or results of operations.
Provisions in our governing documents and under Delaware law could discourage a takeover that shareholders may consider favorable.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:
•authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against a takeover attempt;
•providing that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by shareholders;
•advance notice procedures, which apply for shareholders to nominate candidates for election as directors or to bring matters before an annual meeting of shareholders;
•no authorization of cumulative voting, which limits the ability of minority shareholders to elect director candidates;
•certain amendments to our amended and restated certificate of incorporation require the approval of two-thirds of the then outstanding voting power of our capital stock;
•our amended and restated certificate of incorporation requires the approval of two-thirds of the then outstanding voting power of our capital stock for shareholders to adopt, amend, alter or repeal our bylaws, or adopt any provision inconsistent with our bylaws;
•a prohibition on shareholder action by written consent, which means that our shareholders will only be able to take action at a meeting of shareholders; and
•preventing shareholders from calling special meetings.
In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” shareholder for a period of three years following the date on which the shareholder becomes an “interested” shareholder.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
•being permitted to provide only two years of audited consolidated financial statements, in addition to any required unaudited interim consolidated financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
•not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting of Section 404(b) of the Sarbanes-Oxley Act;
•not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements;
•reduced disclosure obligations regarding executive compensation; and
•exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We have taken advantage of reduced reporting burdens in our filings with the SEC. 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 allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards.
We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fifth fiscal year after the date of Company’s final prospectus for its initial public offering of its common stock.
Since we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, stock price appreciation, if any, will be your sole source of gain.
We currently intend to retain all our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be your sole source of gain for the foreseeable future.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for:
•any derivative action or proceeding brought on our behalf;
•any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders;
•any action asserting a claim against us or our directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; and
•any action asserting a claim against us or our directors, officers or employees governed by the internal affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.
In addition, our certificate of incorporation provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, unless we consent in writing to the selection of an alternative forum. This exclusive forum provision does not apply to claims under the Exchange Act.
These exclusive forum provisions may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage these types of lawsuits. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the exclusive forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES.
We currently lease approximately 6,888 square feet of commercial space for manufacturing, distribution and related office use in one building, a second lease provides us approximately 13,600 square feet of further commercial space for manufacturing, distribution and related office use, and a third lease provides us with approximately 28,600 square feet for our customer fulfillment center. On March 15, 2019, we purchased lots adjacent to our current manufacturing facility in Sisters, Oregon. We believe that our existing facilities and other available properties will be sufficient for our needs for the foreseeable future.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
We are not subject to any material legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock began trading on the NYSE American Market under the symbol “LSF” on September 23, 2020. Prior to that date, there was no public trading market for our common stock.
Holders
As of March 7, 2022, there were 57 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name.
Dividend Policy
We currently intend to retain all available funds and any future earnings, if any, to fund the growth and development of our business, and therefore we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness. Any such determination will also depend upon our business prospects, results of operations, financial condition, cash requirements and availability and other factors that our board of directors may deem relevant.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED].

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. All references to share and per share data and related information in this Annual Report on Form 10-K have been retroactively adjusted to reflect the two-for-one split of our common stock effected on August 19, 2020.
Overview
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, Harvest Snacks and other food items, and roasted and instant coffees, teas and hot chocolate. Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients. Laird Superfood’s long-term goal is to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality, allowing the Company to maximize penetration of a multi-billion-dollar opportunity in the grocery market.
We have experienced strong sales growth since inception. Net sales increased to $36.8 million for the year ended December 31, 2021, from $25.8 million for the year ended December 31, 2020, representing net sales growth of 43%. The growth in the year ended December 31, 2021 was primarily driven by a significant expansion of our customer base in both online and traditional wholesale channels as we continue to invest in marketing and advertising and continue to expand product offerings to drive sales volume growth.
Our omnichannel distribution strategy has three key components: online, wholesale and food service. In aggregate, this omnichannel strategy provides us with a diverse set of customers and wholesale partners, along with an opportunity to develop a direct relationship with our customers at lairdsuperfood.com. We believe that, along with a trusted brand name, extensive proprietary distribution is a critical long-term and sustainable barrier to entry in the food industry.
Our online business is two pronged and consists of direct-to-consumer sales (lairdsuperfood.com and pickybars.com) and Amazon.com. For the years ended December 31, 2021 and 2020, our online business made up 62% and 56% of our net sales, respectively. Lairdsuperfood.com is a platform that provides an authentic brand experience for our customers that drives engagement and provides feedback for future product development, while generating highly attractive margins. We view our growing proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our 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 almost three-fourths of direct-to-consumer sales for the year ended December 31, 2021.
Our wholesale business addresses the $800 billion grocery industry, specifically the $259 billion Natural, Organic and Functional Foods and Beverages sub-segment, which has been increasing its proportion of the grocery industry, as well as many non-grocery retail channels. For the years ended December 31, 2021 and 2020, wholesale made up 37% and 42% of our net sales, respectively. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. We currently estimate our products are in over 8,100 retail door locations with over 36,000 points of distribution and we believe the long-term potential store base exceeds 20,000 retail locations in the United States. The diversity of our retail channel represents a strong competitive advantage for Laird Superfood and provides us with a larger total addressable market than would be considered normal for a food brand that is singularly focused on the grocery market.
Recent Developments
Appointment of new CEO
Effective January 31, 2022, the Company’s Board of Directors appointed Jason Vieth as the Company’s President and Chief Executive Officer and elected Mr. Vieth as a director of the Company. Mr. Vieth joined the Company from Sovos Brands, Inc., where he most recently served as executive vice president and group general manager of the Breakfast and Snacks segment. Before joining Sovos Brands in January 2020, Mr. Vieth served as chief executive officer of Poppi, a producer of prebiotic soda, from April 2019 to January 2020 and president of Life Time Fitness’ Life Cafe from April 2017 to April 2019 and held various management positions for WhiteWave Foods Company from January 2008 to April 2017. Mr. Vieth replaced Paul Hodge, who stepped down as President and Chief Executive Officer and a director of the Company upon Mr. Vieth’s appointment.
Picky Bars Acquisition
On May 3, 2021, the Company acquired Picky Bars, LLC (“Picky Bars”), an innovator in the healthy snack industry focused on nutritionally balanced, real-food products, for a cash-free, debt free purchase price of $11.1 million, subject to customary working capital adjustments, and 53,133 shares of Company common stock, subject to certain vesting conditions.
Revolving Credit Facility
On September 2, 2021, the Company entered into a revolving line of credit with Wells Fargo Bank National Association in a principal amount not exceeding $9.5 million. The line of credit has a maturity date of August 31, 2022. The outstanding amounts under the line of credit have an interest rate calculated as Daily Simple Secured Overnight Financing Rate plus 1.5% per annum until paid in full.
Key Factors Affecting our Performance
We believe that our future performance will depend on many factors, including the following:
Ability to Grow Our Customer Base in both Online and Traditional Wholesale Distribution Channels
We are currently growing our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical retail distribution channels. Online customer acquisitions typically occur at our direct websites lairdsuperfood.com and pickybars.com, and Amazon.com. Our online customer acquisition program includes paid and unpaid social media, search, display and traditional media. Our products are also sold through a growing number of physical retail channels. Wholesale customers include grocery chains, natural food outlets, club stores, and drug stores, and food service customers include coffee shops, gyms, restaurants, hospitality venues and corporate dining services, among others. Customer acquisition in physical retail channels depends on, among other things, paid promotions through retailers, display and traditional media. Ability to Acquire and Retain Customers at a Reasonable Cost
We believe an ability to consistently acquire and retain customers at a reasonable cost relative to projected life-time value will be a key factor affecting future performance. To accomplish this goal, we intend to balance advertising spend between online and offline channels, as well as balancing more targeted and measurable “direct response” marketing spend with advertising focused on increasing our long-term brand recognition, where success attribution is less directly measurable on a near-term basis.
Ability to Drive Repeat Usage of Our Products
We accrue substantial economic value from repeat users of our products who consistently re-order our products. The pace of our growth will be affected by the repeat usage dynamics of existing and newly acquired customers.
Ability to Expand Our Product Line
Our goal is to substantially expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time.
Ability to Expand Gross Margins
Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing of raw materials, controlling labor and shipping costs, as well as spreading other production-related costs over greater manufacturing volumes.
Ability to Expand Operating Margins
Our ability to expand operating margins will be impacted by our ability to cover fixed general and administrative costs and variable sales and marketing costs with higher revenues and gross profit dollars.
Ability to Manage Our Global Supply Chain and Expand Production In-line with Demand
Our ability to grow and meet future demand will be affected by our ability to properly plan for and source inventory from a variety of suppliers located inside and outside the United States. We may encounter difficulties in sourcing products. As an example, one of our suppliers entered voluntary receivership in June 2021, and we may be unable to find a suitable replacement supplier on substantially similar terms or at all.
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.
We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and higher expenses for insurance, investor relations and professional services. We expect our general and administrative expenses will increase as our business grows.
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 years ended December 31, 2021 (“FY2021”) and December 31, 2020 (“FY2020”)
The following table summarizes our results of operations for the periods indicated:
For the Years Ended
December 31,
$
%
Change
Change
Sales, net
$
36,810,953
$
25,783,226
$
11,027,727
%
Cost of goods sold
(27,379,082
)
(19,204,642
)
(8,174,440
)
%
Gross profit
9,431,871
6,578,584
2,853,287
%
Gross margin
25.6
%
25.5
%
General and administrative
16,459,262
8,828,279
7,630,983
%
Research and product development
1,030,127
508,170
521,957
%
Sales and marketing
15,894,898
10,171,306
5,723,592
%
Total expenses
33,384,287
19,507,755
13,876,532
%
Operating loss
(23,952,416
)
(12,929,171
)
(11,023,245
)
%
Total other income
99,704
78,870
20,834
%
Loss before income taxes
(23,852,712
)
(12,850,301
)
(11,002,411
)
%
Income tax expense
(17,834
)
-
(17,834
)
%
Net loss
(23,870,546
)
(12,850,301
)
(11,020,245
)
%
Less deemed dividend of beneficial conversion
feature
-
(825,366
)
825,366
(100
)%
Less deemed dividend of warrants
-
(825,366
)
825,366
(100
)%
Net loss attributable to Laird Superfood, Inc.
common stockholders
$
(23,870,546
)
$
(14,501,033
)
$
(9,369,513
)
%
Sales, Net
For the Years Ended December 31,
2021 v. 2020 Change
$
%
Sales, net
$
36,810,953
$
25,783,226
$
11,027,727
%
Net sales increased to $36.8 million FY2021, compared to $25.8 million in FY2020. This increase was due to growth in our online and wholesale channels, primarily caused by an increase in sales volume, as well as the acquisition of Picky Bars. Products introduced after FY2020, including Activate Immune Support, Aloha Plant Milk, Baking Mixes, Mushroom Botanicals, OatMac Superfood Creamers, Picky Bars products, Renew Protein, and Renew Rest & Recover, and additional Liquid Creamer flavors, accounted for $5.1 million of sales in FY2021. Year-over-year sales growth in existing products accounted for $5.7 million of the increase in net sales in FY2021 over FY2020. During FY2021, 38% of all direct online orders were repeat orders, compared to 36% in FY2020, and 39% of our direct online net sales came from subscription programs, compared to 30% in FY2020.
Cost of Goods Sold
For the Years Ended December 31,
2021 v. 2020 Change
$
%
Cost of Goods Sold
$
(27,379,082
)
$
(19,204,642
)
$
(8,174,440
)
%
Cost of goods sold increased to $27.4 million in FY2021 from $19.2 million in FY2020, primarily due to sales growth in the 2021 period and the corresponding increase in consumables and outbound shipping and freight expenses ($5.9 million increase), as well as elevated labor costs ($1.1 million increase), increased co-packing costs primarily associated with our liquid creamer product line ($0.6 million increase), and general inflationary pressures.
Gross Profit
For the Years Ended December 31,
2021 v. 2020 Change
$
%
Gross Profit
$
9,431,871
$
6,578,584
$
2,853,287
%
Gross profit increased to $9.4 million in FY2021 from $6.6 million in FY2020. Gross margin was 25.6% in FY2021 compared to 25.5% in FY2020 with benefits related to reduced inbound freight costs, labor efficiency, and optimized DTC parcel cost, offset by elevated outbound wholesale freight expenses, increased co-packing costs primarily associated with our liquid creamer product line, mix shift, and general inflationary pressure.
Operating Expenses
For the Years Ended December 31,
2021 v. 2020 Change
$
%
Operating Expenses
General and Administrative
$
16,459,262
$
8,828,279
$
7,630,983
%
Research and Product Development
1,030,127
508,170
521,957
%
Sales and Marketing
15,894,898
10,171,306
5,723,592
%
Total Operating Expenses
$
33,384,287
$
19,507,755
$
13,876,532
%
General and administrative expense increased to $16.5 million in FY2021 from $8.8 million in FY2020, primarily due to costs of operating as a publicly traded company. FY2021 included elevated expenses related to stock-based compensation ($2.1 million increase), personnel costs ($1.3 million increase), insurance expense ($1.5 million increase), professional fees ($1.3 million increase), reserve against prepaid assets ($0.2 million increase), and amortization of intangible assets ($0.4 million increase). Nonrecurring expenses related to our acquisition of Picky Bars and CEO search amounted to $0.4 million.
Research and product development expense increased to $1.0 million in FY2021 from $0.5 million in FY2020, primarily due to costs incurred to bring new products to market.
Sales and marketing expense increased to $15.9 million in FY2021 from $10.2 million in FY2020, primarily due to advertising expense and marketing fees ($6.1 million increase), partially offset by decreased stock-based compensation ($0.4 million decrease).
Other Income
For the Years Ended December 31,
2021 v. 2020 Change
$
%
Other income
$
99,704
$
78,870
$
20,834
%
Other income is composed of interest income and dividend income related to investment securities available-for-sale, grant income from the conversation of notes payable, as well as other non-operating costs. Other income increased to $99.7 thousand of income in FY2021 from $78.9 thousand of income in FY2020, primarily the result of long-term notes payable converting to grant income of $51.0 thousand, offset by declining interest rates in FY2021, as well as realized gains on the sale of available for sale securities in FY2020.
Income Tax Expense
For the Years Ended December 31,
2021 v. 2020 Change
$
%
Income tax expense
$
(17,834
)
$
-
$
(17,834
)
%
Income tax expense increased to $17.8 thousand in FY2021 from $0 in FY2020, due to a deferred tax liability of $17.8 thousand for the book versus tax basis difference related to the goodwill intangible asset acquired in the Picky Bars acquisition, also known as a “naked credit.”. We maintain a valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses or benefits for the foreseeable future.
Liquidity and Capital Resources
As of December 31, 2021, we had incurred accumulated net losses of $55.8 million, including operating losses of $24.0 million and $12.9 million for FY2021 and FY2020, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, and we expect to incur additional expenses associated with being a public company. We have historically financed our operations and capital expenditures through private placements of our preferred stock and common stock, our 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.
As of December 31, 2021, we had $31.7 million of cash-on-hand and investments and $19.7 million of available borrowings under our lines of credit. As of December 31, 2020, we had $65.9 million of cash-on-hand and investments and $11.0 million of available borrowings under our lines of credit. As of December 31, 2021, and December 31, 2020, we had $0 and $51.0 thousand outstanding under our forgivable loan with the City of Sisters, Oregon, respectively, and no amounts were outstanding under our lines of credit.
We have purchased five adjoining lots providing opportunity for expansion of our campus if needed. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the enhancement of our product platforms, the introduction of new products and acquisition activity. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:
•Cash outflows for capital expenditures were $1.6 million in 2021 and $1.1 million in 2020. We expect capital expenditures to increase in fiscal 2022 to support the increase in our manufacturing and production capacity needs.
•The Company has lease arrangements for certain equipment and facilities, including corporate and manufacturing space. As of December 31, 2021, the Company had fixed lease payment obligations of $6.7 million, with $0.7 million payable within 12 months.
•As of December 31, 2021, $3.8 million of current liabilities were accrued related to short term operating activities.
•Advertising and marketing expenditures were $12.1 million in 2021 and $5.8 million in 2020. We expect to continue to invest in these activities as part of the strategic expansion of sales volume.
We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. We believe our cash, cash equivalents and marketable securities, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans.
Comparison of the years ended December 31, 2021 ("FY2021") and December 31, 2020 ("FY2020")
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
For the Years Ended
December 31,
Cash flows used in operating activities
$
(22,095,807
)
$
(14,683,972
)
Cash flows used in investing activities
(12,639,286
)
(4,280,987
)
Cash flows from financing activities
576,247
75,168,930
Net change in cash
$
(34,158,846
)
$
56,203,971
Cash Flows used in Operating Activities
Cash used in operating activities was $22.1 million for FY2021 as compared to $14.7 million in FY2020, both of which are primarily the result of the operating losses for the periods as well as increasing inventory levels.
Cash Flows used in Investing Activities
Cash used in investing activities was $12.6 million in FY2021 as compared to $4.3 million in FY2020. The change is primarily due to the acquisition of Picky Bars in FY2021 and net purchases of available-for-sale investments in FY2020.
Cash Flows from Financing Activities
Cash provided by financing activities was $0.6 million in FY2021 compared to $75.2 million in FY2020. Cash provided for FY2021 primarily related to stock option exercises, partially offset by payroll tax payments withheld from stock-based compensation and common stock issuance costs, while cash provided for FY2020 primarily related to our initial public offering.
Segment Information
We have one operating segment and one reportable segment, as our Chief Executive Officer reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Critical Accounting Estimates
The preparation of consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) 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 Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Revenue Recognition
We recognize revenue for the sale of our product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale. Revenue is measured by the transaction price, which is defined as the amount of consideration we expect to receive in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes consumer incentives, trade promotions, and allowances, such as coupons, discounts, rebates, incentives, cooperative advertising, and other programs. Variable consideration related to these programs is recorded as a reduction to revenue based on amounts we expect to pay.
The transaction price contains estimates of known or expected variable consideration. We base these estimates on current performance, historical utilization, and projected redemption rates of each program. We review and update these estimates regularly until the incentives or product returns are realized and the impact of any adjustments are recognized in the period the adjustments are identified.
We do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize revenue. As noted above, estimates are made based on historical experience and other factors. Typically, programs that are offered have a short duration and, historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual consolidated financial statements. However, if the level of redemption rates or performance were to vary significantly from estimates, we may be exposed to gains or losses that could be material. We have not made any material changes in the accounting methodology used to recognize revenue during the past three fiscal years.
Business Combinations
We account for acquired businesses using the acquisition method of accounting, which requires that once control of a business is obtained, 100% of the assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
We use various models to determine the value of assets acquired and liabilities assumed such as net realizable value to value inventory, cost method and market approach to value property, and multi-period excess earnings to value intangibles and discounted cash flow to value goodwill.
For significant acquisitions we may use independent third-party valuation specialists to assist us in determining the fair value of assets acquired and liabilities assumed.
Significant judgment is often required in estimating the fair value of assets acquired and liabilities assumed, particularly intangible assets. We make estimates and assumptions about projected future cash flows including sales growth, operating margins, attrition rates, and discount rates based on historical results, business plans, expected synergies, perceived risk and marketplace data considering the perspective of marketplace participants. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may be considered to have indefinite useful lives.
While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions, which could result in subsequent impairments. During the year ended December 31, 2021, we had a material business combination with Picky Bars. See Note 2 to our audited consolidated financial statements included elsewhere in this Form 10-K for more information.
Impairment of Goodwill and Long-Lived Assets
Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more likely than not less than its carrying amount or if significant changes to macro-economic factors related to the reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. The quantitative test compares the fair value of a reporting unit with its carrying amount. Upon performing the quantitative test, if the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill.
Long-lived assets and definite life intangibles 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, a change in its physical condition, or an unexpected change in financial performance. When evaluating long-lived assets and definite life intangibles 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. For assets held for sale, we compare the carrying value of the disposal group to fair value. The impairment is the excess of the carrying value over the fair value of the asset. During the years ended December 31, 2021 and 2020, impairment charges for long-lived assets were $8,317 and $239,734, respectively.
Stock Incentive Plan
Compensation cost relating to share-based payment transactions is measured based on the grant date fair value of the equity or liability instruments issued. The fair value of the compensation is estimated utilizing valuation methods including Black-Scholes and Monte Carlo, and 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. While there is inherent uncertainty in the estimated fair value of the awards, management believes that the expectations and assumptions are reasonable.
Recent Accounting Pronouncements
See Recently Issued Accounting Pronouncements in Note 1 to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Auditor Firm Id:
Auditor Name:
Moss Adams LLP
Auditor Location:
Portland, Oregon, USA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Laird Superfood, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Laird Superfood, Inc (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the year(s) then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Moss Adams LLP
Portland, Oregon
March 8, 2022
We have served as the Company’s auditor since 2018.
LAIRD SUPERFOOD, INC.
CONSOLIDATED BALANCE SHEETS
As of
December 31, 2021
December 31, 2020
Assets
Current assets
Cash, cash equivalents, and restricted cash
$
23,049,234
$
57,208,080
Accounts receivable
1,268,718
839,659
Investment securities available-for-sale
8,635,077
8,706,844
Inventory
10,221,343
6,295,898
Prepaid expenses and other current assets, net
3,827,543
2,847,319
Deposits
679,919
97,674
Total current assets
47,681,834
75,995,474
Noncurrent assets
Property and equipment, net
4,512,935
3,513,488
Intangible assets, net
4,838,854
137,092
Goodwill
6,486,000
-
Deferred rent
2,327,752
2,696,646
Total noncurrent assets
18,165,541
6,347,226
Total assets
$
65,847,375
$
82,342,700
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$
888,768
$
1,315,964
Payroll liabilities
814,163
722,915
Accrued expenses
2,083,090
704,543
Total current liabilities
3,786,021
2,743,422
Long-term liabilities
Deferred tax liability, net
7,534
-
Note payable
-
51,000
Total long-term liabilities
7,534
51,000
Total liabilities
3,793,555
2,794,422
Stockholders’ equity
Common stock, $0.001 par value, 100,000,000 shares authorized as of December 31, 2021 and December 31, 2020; 9,460,243 and 9,094,539 issued and outstanding at December 31, 2021, respectively; 9,247,758 and 8,892,886 issued and outstanding at December 31, 2020, respectively
9,095
8,893
Additional paid-in capital
117,903,455
111,452,346
Accumulated other comprehensive income (loss)
(61,016
)
14,207
Accumulated deficit
(55,797,714
)
(31,927,168
)
Total stockholders’ equity
62,053,820
79,548,278
Total liabilities and stockholders’ equity
$
65,847,375
$
82,342,700
The accompanying notes are an integral part of these consolidated financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December,
Sales, net
$
36,810,953
$
25,783,226
Cost of goods sold
(27,379,082
)
(19,204,642
)
Gross profit
9,431,871
6,578,584
General and administrative
Salaries, wages and benefits
4,822,910
3,546,489
Stock-based compensation
3,569,416
1,424,803
Professional fees
2,232,171
963,791
Insurance expense
2,140,208
666,045
Office expense
1,217,651
735,669
Occupancy
430,148
612,998
Merchant service fees
598,657
375,792
Other expense
1,448,101
502,692
Total general and administrative expenses
16,459,262
8,828,279
Research and product development
Salaries, wages and benefits
421,521
272,605
Stock-based compensation
23,561
10,261
Product development expense
566,695
209,275
Other expense
18,350
16,029
Total research and product development expenses
1,030,127
508,170
Sales and marketing
Salaries, wages and benefits
2,529,231
2,669,384
Stock-based compensation
228,968
661,026
Advertising
7,570,879
4,257,963
General marketing
4,491,446
1,568,258
Other expense
1,074,374
1,014,675
Total sales and marketing expenses
15,894,898
10,171,306
Total expenses
33,384,287
19,507,755
Operating loss
(23,952,416
)
(12,929,171
)
Other income (expense)
Interest and dividend income
48,704
64,943
Gain on sale of available-for-sale securities
-
13,927
Grant income
51,000
-
Total other income
99,704
78,870
Loss before income taxes
(23,852,712
)
(12,850,301
)
Income tax expense
(17,834
)
-
Net loss
$
(23,870,546
)
$
(12,850,301
)
Less deemed dividend of beneficial conversion feature
-
(825,366
)
Less deemed dividend on warrant discount
-
(825,366
)
Net loss attributable to Laird Superfood, Inc. common stockholders
$
(23,870,546
)
$
(14,501,033
)
Net loss per share attributable to Laird Superfood, Inc common stockholders:
Basic
$
(2.66
)
$
(2.61
)
Diluted
$
(2.66
)
$
(2.61
)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted
8,983,294
5,546,078
The accompanying notes are an integral part of these consolidated financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Years Ended
December 31,
Net loss
$
23,870,546
$
14,501,033
Other comprehensive income (loss), net of tax
Change in unrealized gains (losses) on investment securities available-for-sale,
net of tax(1)
(75,223
)
14,433
Total other comprehensive income (loss)
(75,223
)
14,433
Comprehensive loss
$
23,795,323
$
14,515,466
(1)The Company maintains a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. See note 10 for the estimated tax benefit deferred.
The accompanying notes are an integral part of these consolidated financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Convertible Preferred Stock
Stockholders’ Equity
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Balances, January 1, 2020
314,593
$
6,722,951
4,188,558
$
4,188
$
27,184,250
$
(226
)
$
(19,076,867
)
$
8,111,345
Stock-based compensation
-
-
14,660
2,318,487
-
-
2,318,502
Stock option exercises
-
-
19,434
259,728
-
-
259,747
Less: repurchased common stock
-
-
(1,416
)
(1
)
(20,531
)
-
-
(20,532
)
Preferred stock issuances
383,142
10,000,006
-
-
-
-
-
-
Beneficial conversion feature on Preferred Series B-1
-
(825,366
)
-
-
825,366
-
-
825,366
Deemed dividend of beneficial conversion feature
-
825,366
-
-
(825,366
)
-
-
(825,366
)
Allocation of preferred series B-1 proceeds to warrant
-
(825,366
)
-
-
825,366
-
-
825,366
Deemed dividend on warrant discount
-
825,366
-
-
(825,366
)
-
-
(825,366
)
Preferred stock issuance costs
-
(147,721
)
-
-
-
-
-
-
Preferred stock conversion
(697,735
)
(16,575,236
)
1,395,470
1,396
16,573,840
-
-
16,575,236
Common stock issuances
-
-
3,276,180
3,276
66,107,241
-
-
66,110,517
Common stock issuance costs
-
-
-
-
(1,268,772
)
-
-
(1,268,772
)
Capital contribution
-
-
-
-
298,103
-
-
298,103
Other comprehensive income, net of tax
-
-
-
-
-
14,433
-
14,433
Net loss
-
-
-
-
-
-
(12,850,301
)
(12,850,301
)
Balances, December 31, 2020
-
$
-
8,892,886
$
8,893
$
111,452,346
$
14,207
$
(31,927,168
)
$
79,548,278
Stock-based compensation
-
-
-
-
4,040,207
-
-
4,040,207
Less: Withholding tax payments for share-based compensation
-
-
(2,848
)
(3
)
(219,155
)
-
-
(219,158
)
Stock option exercises
-
-
100,211
810,556
-
-
810,656
Common stock issuance costs
-
-
-
-
(82,043
)
-
-
(82,043
)
Restricted stock units issued
-
-
46,758
-
-
-
Common stock issued for business acquisition costs
-
-
53,134
1,834,804
-
-
1,834,857
Employee stock purchase plan shares issued
-
-
4,398
66,740
-
-
66,744
Other comprehensive loss, net of tax
-
-
-
-
-
(75,223
)
-
(75,223
)
Net loss
-
-
-
-
-
-
(23,870,546
)
(23,870,546
)
Balances, December 31, 2021
-
$
-
9,094,539
$
9,095
$
117,903,455
$
(61,016
)
$
(55,797,714
)
$
62,053,820
The accompanying notes are an integral part of these consolidated financial statements.
LAIRD SUPERFOOD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
Cash flows used in operating activities
Net loss
$
(23,870,546
)
$
(12,850,301
)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation
596,505
474,621
Amortization
385,093
10,152
Gain on disposal of equipment
(6,400
)
-
Stock-based compensation
4,040,207
2,318,502
Reserve for prepaid assets
179,000
-
Restricted stock awards
-
62,431
Noncash conversion of note payable to grant income
(51,000
)
-
Impairment on property, plant, and equipment
8,317
239,734
Deferred taxes
7,534
-
Gain on sale of investment securities available-for-sale
-
13,927
Changes in operating assets and liabilities:
Accounts receivable
(382,970
)
(454,853
)
Inventory
(3,199,439
)
(3,859,932
)
Prepaid expenses and other current assets
(922,058
)
(2,256,511
)
Deferred rent
368,894
360,786
Deposits
(86,920
)
30,954
Accounts payable
(474,519
)
591,213
Payroll liabilities
82,059
231,824
Accrued expenses
1,230,436
403,481
Net cash from operating activities
(22,095,807
)
(14,683,972
)
Cash flows used in investing activities
Purchase of property, plant, and equipment
(1,555,191
)
(1,059,858
)
Proceeds on sale of property, plant, and equipment
12,700
-
Deposits on equipment to be acquired
(489,325
)
-
Purchase of software
(156,855
)
-
Acquisition of a business, net of cash acquired (note 2)
(10,449,587
)
-
Purchase of investment securities available-for-sale
(1,028
)
(8,171,129
)
Proceeds from maturities of investment securities available-for-sale
-
4,950,000
Net cash from investing activities
(12,639,286
)
(4,280,987
)
Cash flows from financing activities
Issuance of common stock
66,744
66,110,517
Issuance of preferred stock
-
10,000,006
Common stock issuance costs
(82,043
)
(1,268,772
)
Preferred stock issuance costs
-
(147,721
)
Capital contribution
-
298,103
Restricted stock units issued
-
Withholding tax payments for share based compensation
(219,158
)
-
Repurchased common stock
-
(20,532
)
Stock options exercised
810,656
197,329
Net cash from financing activities
576,247
75,168,930
Net change in cash and cash equivalents
(34,158,846
)
56,203,971
Cash and cash equivalents beginning of year
57,208,080
1,004,109
Cash and cash equivalents end of year
$
23,049,234
$
57,208,080
Supplemental disclosures of non-cash information
Noncash conversion of note payable to grant income
$
51,000
$
-
Unrealized gain (loss) on available-for-sale securities
$
(75,223
)
$
14,433
Common stock issued in connection with the acquisition of a business (note 2)
$
1,834,857
$
-
Conversion of preferred stock to common stock
$
-
$
16,575,236
Purchases of equipment included in deposits at the beginning of the year
$
-
$
14,699
Purchases of equipment included in accrued expenses
$
26,141
$
-
The accompanying notes are an integral part of these consolidated financial statements.
LAIRD SUPERFOOD, INC
Notes to Consolidated Financial Statements
1.Nature of Operations and Summary of Significant Accounting Policies
The accompanying audited consolidated financial statements include the accounts of Laird Superfood, Inc. (the “Company” or “Laird Superfood”), a Delaware corporation. On July 3, 2018, the Company entered into a plan of conversion and was converted from a corporation under the laws of the State of Oregon to a corporation under the laws of the State of Delaware with an updated par value of $0.001 per share of common stock.
Nature of Operations
Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated, plant-based and functional foods from its headquarters in Sisters, Oregon. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, harvest snacks and other food items, and roasted and instant coffees, teas and hot chocolate. The Company was founded in 2015.
Initial Public Offering
On September 25, 2020, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 3,047,500 shares of its common stock at a public offering price of $22 per share, including 397,500 shares of common stock upon the exercise of the underwriter’s option to purchase additional shares. After underwriting discounts and commissions and other offering costs, net proceeds from the IPO were approximately $61,966,237. Offering costs of approximately $1,268,772 were recognized as a reduction of additional-paid-in capital.
Upon the closing of the IPO, all outstanding shares of the Company’s preferred stock converted into shares of common stock, consisting of (i) 162,340 outstanding shares of Series A-1 convertible preferred stock converting into 324,680 aggregate shares of common stock, (ii) 152,253 outstanding shares of Series A-2 convertible preferred stock converting into 304,506 aggregate shares of common stock, and (iii) 383,142 outstanding shares of Series B-1 convertible preferred stock converting into 766,284 aggregate shares of common stock.
Concurrent Private Placement
Danone Manifesto Ventures, PBC (“DMV”) purchased 90,910 shares of our common stock in a private placement immediately subsequent to the consummation of the IPO for a total purchase price of $2,000,020, at a price per share of $22.
Basis of Accounting
The consolidated financial statements include the accounts of the Company. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and rules and regulations of the Securities and Exchange Commission (“SEC”). Operating results include the years ended December 31, 2021 and 2020.
Principles of Consolidation
These consolidated financial statements include the accounts of Laird Superfood, Inc. and our wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in our accompanying consolidated financial statements.
Use of Estimates
The preparation of consolidated 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 the business combination, allowances for doubtful accounts and returns, inventory obsolescence, goodwill, intangible assets, valuation allowance for deferred taxes, reserves on prepaid expenses, and fair value of stock-based compensation.
Segment reporting
The Company currently has one operating segment. In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management reviews financial information presented on a consolidated basis for purposes of allocation of resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.
Substantially all product sales for the periods provided were derived from domestic sales.
See Note 17 for additional information regarding sales by platform within the Company’s single segment.
Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents, and restricted cash are highly liquid instruments with an original maturity of three months or less when purchased. For the purposes of the statements of cash flows, the Company includes cash on hand, cash in clearing accounts, cash on deposit with financial institutions, investments with an original maturity of three months or less, and restricted cash in determining the total balance.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.
December 31,
December 31,
Cash and cash equivalents
$
22,932,663
$
56,973,896
Restricted cash
116,571
234,184
Total cash, cash equivalents, and restricted cash shown in the
statement of cash flows
$
23,049,234
$
57,208,080
Amounts in restricted cash represent those that are required to be set aside by contractual agreement. On December 3, 2020, the Company entered into an agreement with DMV, which provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. During the years ended December 31, 2021 and 2020, we contributed $117,613 and $63,919, respectively, to these projects. The restriction will be released upon the completion of the projects.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit and cash equivalents. At times, cash and cash equivalents balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurable limits. The Company’s investment account (recognized as cash and cash equivalents) is with what the Company believes to be a high-quality issuer. The Company has never experienced any losses related to these balances. Non-interest-bearing amounts on deposit in excess of FDIC insurable limits as of December 31, 2021 and 2020 approximated $10,835,360 and $6,639,821, respectively.
Accounts Receivable
Accounts receivable consist principally of trade receivables, which are recorded at the invoiced amount, net of allowances for doubtful accounts. Trade receivables do not bear interest. Receivables are considered past due or delinquent according to contract terms. Management closely monitors outstanding balances and writes off accounts receivable as they are determined uncollectible. The Company provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing receivables. Based on these factors, management determined no allowance for doubtful accounts was required as of December 31, 2021 and 2020.
Investments
Investment securities that are not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income or loss, net of income taxes. Management determines the appropriate classification of securities at the time of purchase. Investment securities are valued utilizing quoted prices in active markets. Gains and losses on the sales of available-for-sale securities are determined using the specific-identification method.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists primarily of raw materials and packaging and finished goods. As of December 31, 2021 and 2020, inventory was comprised of the following:
December 31,
December 31,
Raw materials and packaging
$
4,771,671
$
4,109,706
Finished goods
5,449,672
2,186,192
Total
$
10,221,343
$
6,295,898
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 years ended December 31, 2021 and 2020, the Company recorded $155,512 and $421,565, respectively, in inventory obsolescence primarily related to the Company’s liquid creamer product line.
As of December 31, 2021 and 2020, the Company had a total of $1,009,954 and $958,166, respectively, of prepayments for future raw materials inventory, which is included in prepaid expenses on the balance sheets.
Property and Equipment
Property and equipment are valued at cost, net of accumulated depreciation. Expenditures for maintenance and repairs that do not extend the useful life or increase the value of the assets are charged to expense in the period incurred. Additions and betterments are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for depreciation purposes for furniture and factory equipment range from 3 to 10 years. The useful life for leasehold improvements is the lesser of the lease term or the useful life. Construction in progress is not depreciated until such a time that the assets are completed and placed into service. For the years ended December 31, 2021 and 2020, depreciation expense was $596,505 and $474,621, respectively.
As of December 31, 2021 and 2020, the Company had a total of $489,325 and $0, respectively, of deposits for future equipment purchases, which is included in deposits on the balance sheets.
Deferred Rent
Deferred rent includes tenant improvement costs that were incurred by the landlord, RII Lundgren Mill, LLC, in the build-out of the Company’s leased space and were reimbursed by the Company. These amounts are treated as additional rents and are expensed straight-line over the life of the lease.
Revenue Recognition
The Company’s significant accounting policy for revenue was updated as a result of the adoption of Accounting Standards Update (“ASU”) 2014-09. The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 2014-09 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 2014-09, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 17 for additional information regarding revenue recognition. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue and a refund liability for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.
Cost of Goods Sold
Cost of goods sold includes material, labor, and overhead costs incurred in the storage and distribution of products sold in the period. Material costs include the cost of products purchased. Labor and overhead costs consist of indirect product costs, including wages and benefits for manufacturing, planning, and logistics personnel, depreciation, facility costs and freight.
Shipping and Handling
Costs of shipping and handling related to sales revenue are included in cost of goods sold. Shipping and handling costs totaled $6,158,594 and $4,074,802 for the years ended years ended December 31, 2021 and 2020, respectively. Income generated from shipping costs billed through to customers was included in Sales, net in the statements of operations. Shipping income totaled $457,879 and $248,865 for the years ended December 31, 2021 and 2020, respectively.
Research and Product Development
Amounts spent on research and development activities are expensed as incurred as research and product development expense on the statements of operations. Research and product development expense was $1,030,127 and $508,170 for the years ended December 31, 2021 and 2020, respectively.
Advertising
Advertising costs are expensed when incurred. Advertising expenses for the years ended December 31, 2021 and 2020 was $7,570,879 and $4,257,963, respectively.
Marketing
Marketing costs are expensed when incurred. Marketing expenses for the years ended December 31, 2021 and 2020 was $4,491,446 and $1,568,258, respectively.
Income Taxes
Income taxes provide for the tax effects of transactions reported in the consolidated 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, deferred rent, 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 $13,124,828 and $7,563,110 as of December 31, 2021 and December 31, 2020, respectively. During the year ended December 31, 2021, the Company recorded a deferred tax liability of $7,534 to account for the book versus tax basis difference related to the goodwill intangible asset acquired in the Picky Bars acquisition, also known as a “naked credit.”
Repurchased Stock
Management presents repurchased stock (at cost) as a reduction in stockholders’ equity to more clearly reflect the historical stock repurchase transactions. There were no common stock repurchase transactions during the year ended December 31, 2021. There were two common stock repurchase transactions during the year ended December 31, 2020, totaling 1,416 shares of common stock and $20,532. Repurchases were valued at a price consistent with or less than the most recent private equity offering by the Company.
Stock Incentive Plan
The compensation cost relating to share-based payment transactions is recognized in the consolidated financial statements. The cost is measured based on the grant date fair value of the equity or liability instruments issued. Compensation cost for all employee stock awards is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for all consultant stock awards is calculated and recognized over the consultant’s service period based on the grant date fair value of the equity or liability instruments issued. Upon exercise of stock option awards or vesting of restricted stock units, recipients are issued shares of common stock. Pre-vesting forfeitures result in the reversal of all compensation cost as of the date of termination, post-vesting cancellation does not.
Earnings per Share
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock that were outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all dilutive potential common stock and preferred stock had been issued and are calculated under the treasury stock method. Due to the Company’s net loss, all stock options, unvested restricted stock, and convertible preferred stock are anti-dilutive and excluded.
Stock Split
The Company’s board of directors and stockholders approved a 2-for-1 split of the Company’s common stock, which was effected on August 19, 2020. The split divided each share of the Company’s issued and outstanding common stock into two shares of common stock and correspondingly adjusted the conversion prices of its convertible preferred stock. No fractional shares were issued in connection with the split. The split was effective upon filing of the Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation on August 19, 2020. The Company has reflected the effect of the 2-for-1 split of its common stock (and the corresponding adjustment of the conversion prices of its preferred stock) in these consolidated financial statements as if it had occurred at the beginning of the earliest period presented.
Warrants
Issued and detachable stock warrants are classified as equity or liability instruments based on the specific terms of the underlying warrant agreement. In circumstances where debt or equity is issued with detachable warrants, the proceeds from issuance are allocated to each instrument based on an acceptable method, which generally involves determining the fair value of one or more of the instruments. In conjunction with the Company’s initial public offering, the warrant outstanding was cancelled. See additional information in Note 13.
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 balance sheets as of December 31, 2021 and 2020, was valued at $132,000 and satisfied with the issuance of 660,000 shares of common stock. The Company has determined that the intangible asset associated with the LH License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 16 for more information on the Company’s related party transaction with Mr. Hamilton.
On May 2, 2018, the Company entered into a license agreement with Gabrielle Reece, who is married to Mr. Hamilton (the “GR License”). Pursuant to the GR License, Ms. Reece granted the Company rights to her name, signature, voice, picture, image, likeness and biographical information commencing on July 1, 2015. This contribution, which is reported on the balance sheets as of December 31, 2021 and 2020, was valued at $100 based on the consideration exchanged. The Company has determined that the intangible asset associated with the GR License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 16 for more information on the Company’s related party transaction with Ms. Reece.
On November 19, 2018, the Company executed a License and Preservation Agreement with Mr. Hamilton and Ms. Reece which superseded the predecessor license agreements with both individuals. The agreement added specific terms related to noncompetition and allowable usage of the property under the license. No additional consideration was exchanged in connection with the agreement and the life of the agreement was set at 100 years.
On May 26, 2020, the Company executed a License and Preservation Agreement with Mr. Hamilton, and Ms. Reece (the “2020 License”), which superseded the predecessor license and preservation agreement with both individuals. Among other modifications, the agreement (i) modified certain approval rights of Mr. Hamilton and Ms. Reece for use of their respective images, signatures, voices, and names (other than those owned by the Company), rights of publicity and common law and statutory rights to the foregoing in the Company’s products, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additional ten-year terms upon the expiration of the initial one-hundred year term. No additional consideration was exchanged in connection with the agreement. As indefinite-lived intangibles, the Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the licensing agreements were less than the carrying amounts. Upon considering these factors, the Company determined it was more likely than not that the fair values of the 2020 License were not less than the carrying amounts; therefore, the Company recognized no impairment for the years ended December 31, 2021 and 2020.
Definite Lived Intangible Assets, net
Definite lived intangible assets consist of software and intangible assets arising from business combinations. Amortization is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for amortization purposes range between 3 and 10 years. Amortization expense is allocated to general and administrative expense. For the years ended December 31, 2021 and 2020, amortization expense was $385,093 and $10,152, respectively.
Goodwill
Goodwill represents the excess of purchase price over the assigned fair values of the assets acquired and liabilities assumed in conjunction with a business combination. Goodwill is reviewed for impairment annually as of December 31, or whenever events occur or circumstances change that indicate goodwill may be impaired. In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-not (more than 50%) that the fair value of goodwill is less than its carrying amount. When performing a qualitative assessment, the Company evaluates factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of goodwill is less than its carrying amount, or if the Company chooses not to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the fair value, not to exceed the total amount of goodwill.
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 years ended December 31, 2021 and 2020, the Company did not match employee contributions.
JOBS Act Accounting Election
The Company qualifies as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. An emerging growth company can elect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. Currently, the Company has elected to file as an emerging growth company defined under the JOBS Act, and as such, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently Adopted Accounting Pronouncements
There were no new accounting pronouncements adopted in the year ended December 31, 2021.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“Topic 842”) (“ASU 2016-02”), whereby lessee will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements must be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The new standard is effective for emerging growth companies that have elected to use private company adoption dates for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company plans to adopt the new standard effective for the year ending December 31, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on the consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs 2018-19 (issued November 2018), 2019-04 (issued April 2019), 2019-05 (issued May 2019), 2019-11 (issued November 2019), 2020-02 (issued February 2020) and 2020-03 (issued March 2020). Topic 326 modifies the measurement and recognition of credit losses for most financial assets and certain other instruments, requiring the use of forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. It also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The standard requires a modified retrospective approach with a cumulative effect adjustment to retained earnings. ASU 2016-13 is effective for the Company’s annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company has not yet evaluated the potential impact of this pronouncement.
On March 12, 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the SOFR. Entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.
On January 7, 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that all derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment (the “Discounting Transition”) are in the scope of ASC 848 and therefore qualify for the available temporary optional expedients and exceptions. As such, entities that employ derivatives that are the designated hedged item in a hedge relationship where perfect effectiveness is assumed can continue to apply hedge accounting without de-designating the hedging relationship to the extent such derivatives are impacted by the Discounting Transition.
The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently reviewing the effect of Topic 848 to our consolidated financial statements.
Reclassification of Prior Period Presentation
Certain prior period amounts have been reclassified for consistency with the current year presentation. As a result, certain line items have been amended in the balance sheets, statements of operations, statements of cash flow, and the related notes to the consolidated financial statements with no impact to overall net loss.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the consolidated financial statements are available to be issued. The Company has evaluated events and transactions subsequent to December 31, 2021 for potential recognition of disclosure in the consolidated financial statements.
Effective January 31, 2022, the Company’s Board of Directors (the “Board”) appointed Jason Vieth as the Company’s President and Chief Executive Officer and elected Mr. Vieth as a director of the Company. On January 28, 2022, Paul Hodge, Jr. notified the Board of his resignation as President and Chief Executive Officer of the Company and as a member of the Board, effective January 31, 2022. In connection with Mr. Hodge’s resignation, Mr. Hodge and the Company entered into an independent contractor agreement pursuant to which Mr. Hodge will provide consulting services to the Company as needed and directed through April 30, 2022.
2.Business Combinations
On May 3, 2021, the Company entered into a definitive agreement to purchase all of the outstanding membership interest units in Picky Bars, LLC (“Picky Bars”), innovators in the healthy snack industry focused on nutritionally balanced, real-food products to fuel performance, for a debt-free purchase price of $11,111,830 in cash, subject to customary working capital adjustments, and 53,133 shares of Company common stock, subject to certain vesting conditions. The transaction closed simultaneously with execution of the agreement. Picky Bars results of operations were included in the Company’s results beginning May 2021. Acquisition costs of Picky Bars in the amount of $278,140 are included in professional and legal fees the Company’s statement of operations for the year ended December 31, 2021. The fair value of the shares of common stock issued as part of the consideration paid for Picky Bars was determined on the basis of the closing price of the Company’s common stock on the acquisition date.
The following table summarizes the consideration paid for Picky Bars and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:
Consideration
Cash
$
11,111,830
Equity instruments
1,834,857
Fair value of total consideration transferred
$
12,946,687
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash
$
662,243
Accounts receivable
48,517
Prepaid expenses and other current assets
237,166
Deposits
6,000
Inventory
726,006
Property and equipment, net
55,378
Intangible assets
4,930,000
Total assets acquired
6,665,310
Accounts payable
47,323
Accrued expenses
131,661
Payroll liabilities
9,189
Contract liabilities
16,450
Total liabilities assumed
204,623
Total identifiable net assets
6,460,687
Goodwill
$
6,486,000
The transaction is aligned with Laird Superfood’s strategic goals, specifically the addition of unique and innovative daily-use products across the Company’s omnichannel platform, and the acquisition of highly complementary assets such as a recurring direct-to-consumer customer base, and is expected to support continued net sales growth and improve the gross margin profile of the Company. Goodwill arising as a result of the acquisition of Picky Bars is primarily the result of synergies in business strategy, target market, and values, from expected cost savings from consolidating operations, and from the anticipated growth that the Company’s supply chain and resources will bring to Picky Bars’ operations. Operations continued with Picky Bars’ previous management and workforce at the Oregon facilities for the majority of the year and were completely integrated with Laird Superfood's operations as of December 31, 2021. The Company continues to operate as one segment. Our estimates of fair value of intangible assets are based upon assumptions believed to be reasonable, yet are inherently uncertain and, as a result, may differ from actual performance. During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill, as appropriate, in the period in which such revised estimates are identified.
The following table summarizes the components of the intangible assets acquired and their estimated useful lives:
Estimated Useful
Life
Fair Value
Trade names
10 years
$
2,530,000
Customer relationships
10 years
1,990,000
Recipes
10 years
330,000
Social media agreements
3 years
80,000
Total intangible assets acquired
$
4,930,000
Picky Bar operations contributed net sales of $3,512,006 and net income $242,379 of to the Company’s continuing operations for the year ended December 31, 2021.
The following unaudited pro forma summary presents the results of the Company as if the acquisition of Picky Bars had occurred on January 1 of the year prior to the acquisition:
Years Ended December 31,
Net Sales
$
38,799,507
$
29,901,954
Net Loss
$
(23,583,464
)
$
(13,384,259
)
3.Prepaid Expenses and Other Current Assets
The following table presents the components of prepaid expenses and other current assets:
December 31,
December 31,
Prepaid insurance
$
1,586,768
$
1,446,189
Prepaid inventory
1,009,954
958,166
Prepaid subscriptions and license fees
455,781
225,567
Prepaid, other
240,657
152,324
Prepaid consulting
-
13,962
Prepaid advertising
253,750
-
Other current assets
459,633
51,111
Total prepaid and other assets
4,006,543
2,847,319
Reserve for prepaid inventory
(179,000
)
-
Prepaid and other assets, net
$
3,827,543
$
2,847,319
4.Investment securities
Investment securities consisted of the following:
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair value
December 31, 2021
Federal agency bonds - mortgage-backed
$
8,696,093
$
-
$
(61,016
)
$
8,635,077
Total investment securities available-for-sale
$
8,696,093
$
-
$
(61,016
)
$
8,635,077
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair value
December 31, 2020
Federal agency bonds - mortgage-backed
$
8,692,637
$
14,207
$
-
$
8,706,844
Total investment securities available-for-sale
$
8,692,637
$
14,207
$
-
$
8,706,844
The amortized cost and estimated fair value of investment securities by contractual maturity, are shown below:
Available-for-sale
December 31, 2021
Amortized
cost
Estimated
fair value
Due after one year through five years
$
8,696,093
$
8,635,077
Total investment securities available-for-sale
$
8,696,093
$
8,635,077
Investment securities with an estimated fair value of $8,635,077 and $8,706,844 as of December 31, 2021 and 2020, respectively, were pledged to secure our revolving line of credit. See Note 6 for additional information.
The Company had no investments reach maturity or sold during the year ended December 31, 2021. The Company had three investments reach maturity totaling $4,950,000 during the year ended December 31, 2020. The Company also recorded two sales and recognized a gain of $13,927 during the year ended December 31, 2020.
5.Fair Value Measurements
Factors used in determining the fair value of our assets and liabilities are summarized into three broad categories:
•Level 1-quoted prices in active markets for identical securities as of the reporting date;
•Level 2-other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and
•Level 3-significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.
The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following tables summarize assets subject to fair value measurements:
Fair Value as of December 31, 2021
Level 1
Level 2
Level 3
Federal agency bonds - mortgage-backed
$
-
$
8,635,077
$
-
Fair Value as of December 31, 2020
Level 1
Level 2
Level 3
Federal agency bonds - mortgage-backed
$
-
$
8,706,844
$
-
The Company believes the carrying amounts of Cash and cash equivalents, Accounts receivable, Prepaid expenses and other current assets, Deposits, Other Assets, Accounts payable, Payroll liabilities and Accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.
The Company believes that fair values of U.S. Agency Bonds issued by the Federal Home Loan Mortgage Corporation are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. agency bonds are included in the Level 2 fair value hierarchy.
As of December 31, 2020, the Company classified fixed assets as held for sale which was included in Level 3 fair value.
6.Revolving Lines of Credit
On September 2, 2021, the Company entered into a revolving line of credit with Wells Fargo Bank National Association in a principal amount not exceeding $9,500,000. The line of credit has a maturity date of August 31, 2022. The outstanding amounts under the line of credit have an interest rate calculated as Daily Simple Secured Overnight Financing Rate (“SOFR”) plus 1.5% per annum until paid in full. The balance on the line of credit was $0 as of December 31, 2021. Management was in compliance with all financial covenants as of December 31, 2021.
On February 5, 2019, the Company entered into a revolving line of credit with First Interstate Bank (“FIB”) in a principal amount not exceeding $5,000,000. The line of credit is secured by the Company’s investment account held at FIB. The outstanding amounts under the line of credit have an interest rate calculated as LIBOR plus 2.0% per annum until paid in full. The loan agreement was renewed by the Company on March 1, 2021 and was closed on September 23, 2021. The balance on the line of credit was $0 as of December 31, 2020. Management was in compliance with all financial covenants as of December 31, 2020.
On August 10, 2017, the Company entered into a revolving line of credit with East Asset Management, LLC (“East”) in a principal amount not exceeding the lesser of the borrowing base or $3,000,000. Upon the mutual agreement of the Company and East, the primary revolving line of credit may be expanded to $10,000,000, subject to an increase in the borrowing base. The borrowing base is comprised of (a) up to 90% of eligible accounts receivable aged 90 days or less from due date utilizing the average of a trailing three months of actual book value, plus (b) up to 90% of inventory and prepaid inventory book values utilizing the average of a trailing three months of actual book value. The outstanding amounts under the line of credit have a fixed interest rate of 15% per annum until paid in full and the line of credit has a maturity date of August 10, 2022. In the event of default, the interest rate would increase to 20% while such default exists. The line of credit is secured by a security interest in accounts receivable and inventory. The balance on the line of credit was $0 as of both December 31, 2021 and December 31, 2020. Management was in compliance with all financial covenants as of December 31, 2021 and December 31, 2020.
A secondary line of credit with East in an amount up to $200,000 is available to the Company, which is not subject to the requirements of the borrowing base. The secondary line of credit is secured by a security interest in the Company’s accounts receivable and inventory. The secondary line is available with the same draw and payback conditions as the primary line. The balance on the line of credit was $0 as of both December 31, 2021 and December 31, 2020.
East was also granted a right of first refusal on any future equity offerings by the Company to purchase up to 20% of equity in any such offerings at a 20% price per share discount, excluding (a) shares representing, in the aggregate, not more than five percent of the Company’s issued and outstanding capital stock on a fully-diluted basis, issued to employees, consultants or directors pursuant to incentive plans; (b) shares issued for consideration other than cash pursuant to a merger, consolidation, strategic alliance, acquisition or similar business combination; (c) shares issued in connection with any distribution, dividend, conversion or recapitalization; (d) shares issued pursuant to any bona fide arms’ length equipment loan or leasing agreement, real property leasing agreement, or debt financing from a financial institution; (e) shares issued in connection with strategic transactions involving the Company and other entities, such as joint ventures, manufacturing, marketing or distribution agreements (provided that in the case of clauses (d) and (e), such issuance represents ten percent or more of the Company’s issued and outstanding capital stock on a fully-diluted basis); and (f) shares issued pursuant to a registration statement filed under the Securities Act of 1933, as amended, in connection with an initial public offering.
7.Long-term Debt
The following table presents the components of long-term debt:
December 31,
December 31,
Forgivable loan, City of Sisters
$
-
$
51,000
Long-term debt
$
-
$
51,000
City of Sisters
On May 30, 2017, the Company entered into a forgivable loan agreement with the City of Sisters in the amount of $51,000. This forgivable loan was issued to help the Company expand its business operations in the city of Sisters, Oregon through eligible jobs. The Company had until May 30, 2020 to create jobs for 30 full-time employees with an average annual salary of $40,000 per person, and, once created and filled, the Company must maintain those jobs for an additional period of three years for the loan to be converted to a grant. If the requirements are not met, the Company is required to pay the loan in full, including interest of eight percent per annum on the unpaid principal amount. The Company created the eligible jobs as of April 1, 2018, and the loan was converted to a grant effective December 8, 2021.
8.Property and Equipment, Net
Property and equipment, net is comprised of the following:
December 31,
December 31,
Factory equipment
$
3,278,035
$
2,668,839
Land
947,394
947,394
Furniture and office equipment
592,316
532,116
Leasehold improvements
993,581
259,504
Construction in progress
148,984
-
5,960,310
4,407,853
Accumulated depreciation
(1,447,375
)
(894,365
)
Property and equipment, net
$
4,512,935
$
3,513,488
9.Goodwill and Intangible Assets, Net
Goodwill
Goodwill represents the excess of purchase price over the assigned fair values of the assets acquired and liabilities assumed in connection with the acquisition of Picky Bars. The carrying amount of goodwill attributed to the acquisition of Picky Bars was $6,486,000 and $0 as of December 31, 2021 and December 31, 2020, respectively.
Goodwill is reviewed for impairment annually at December 31. In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more likely than not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. When performing a qualitative assessment, the Company evaluates factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company chooses not to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
As of December 31, 2021, the Company performed its annual impairment review relative to goodwill, considering macroeconomic factors, industry and market considerations, cost factors and their potential impact on earnings and cash flow, overall financial performance, and other relevant entity-specific factors. Based on the Company's analysis of these factors, it was concluded that there is no impairment as of December 31, 2021.
In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred which would require interim impairment testing. The Company considered the current and expected future economic and market conditions and their impact on the Company, as well as the current market capitalization forecasts.
Intangible Assets, Net
Intangible Assets, net is comprised of the following:
December 31,
December 31,
Trade names (10 years)
$
2,530,000
$
-
Customer relationships (10 years)
1,990,000
-
Recipes (10 years)
330,000
-
Social media agreements (3 years)
80,000
-
Software (3-15 years)
188,662
31,807
Amortizable intangible assets
5,118,662
31,807
Accumulated amortization
(411,908
)
(26,815
)
Amortizable intangible assets, net
4,706,754
4,992
Licensing agreements (indefinite)
132,100
132,100
Total Intangible assets, net
$
4,838,854
$
137,092
The weighted-average useful life of all the Company’s intangible assets is 9.04 years.
For the years ended December 31, 2021 and 2020, amortization expense was $385,093 and $10,152, respectively.
Intangible assets are amortized using the straight-line method over estimated useful lives ranging from three to fifteen years. The estimated amortization expense for each of the next five years and thereafter is as follows:
$
565,441
564,139
508,268
485,120
485,120
Thereafter
2,098,666
$
4,706,754
Definite life intangibles 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 intangibles 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, the Company concludes there is no impairment of long-lived assets as of December 31, 2021.
10.Commitments and Contingencies
The Company currently leases its warehouse space under a commercial lease with RII Lundgren Mill, LLC, dated March 1, 2018. The lease commenced March 1, 2018 with monthly payments of $6,475, to escalate after 24 months by the lesser of 3% or the Consumer Price Index (“CPI”) adjustment. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods. The landlord has paid for many tenant improvements and the Company has committed to reimbursing the landlord, in additional rents, for specific improvements. On November 20, 2018, the Company completed the reimbursement of $797,471. The Company also issued the landlord 2,000 stock options on April 15, 2018 with a strike price of $7.50 per share in conjunction with this lease agreement.
The Company executed a second lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated December 17, 2018. The lease commenced on July 1, 2019 with monthly payments of $12,784, to escalate after 24 months by the lesser of 3% or the CPI adjustment. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods. The landlord has paid for many tenant improvements and the Company has committed to reimbursing the landlord, in additional rents, for specific improvements. On December 20, 2018, the Company completed the initial reimbursement of $1,202,529. The Company made the final reimbursement in the amount of $1,399,001 on December 31, 2019.
On May 26, 2019, the Company executed and commenced an agricultural license agreement for the lease of agricultural land in Hanalei, Hawaii with PRW Princeville Development Company LLC (the “Hanalei Agricultural License”). Total monthly payments were the greater of $1,000 or eight percent of total monthly gross sales of the business done and/or generated on, in, into or from the premises. The initial lease term was five years, with one option to extend the term by five years. The agreement was subsequently amended on September 19, 2019 to include a termination clause if the storefront and property in the Hanalei, Hawaii Lease, discussed below, is not executed. The amendment also expanded the permitted access to include access through other property to the public roadway. On November 3, 2020, the Company and PRW Princeville Development Company LLC entered a termination and release agreement, terminating the Hanalei Agricultural License effective as of October 30, 2020.
On May 26, 2019, the Company executed a license agreement with PRW Princeville Development Company LLC for storefront and property in Hanalei, Hawaii (the “Hanalei Retail License”). Initially, total monthly payments were the greater of $1,000 or eight percent of total monthly gross sales of the business done and/or generated on, in, into or from the property. The initial lease term was five years, with one option to extend the term by five years. The agreement commenced upon receipt of applicable permits. The agreement was subsequently amended on September 19, 2019 to extend the initial permitting period from January 1, 2020 to July 1, 2020, and the payment terms to include the monthly minimum lease payment due the first of the month, with a reconciliation to gross sales in the subsequent month. The agreement was subsequently amended on July 23, 2020 to extend the initial permitting period from July 1, 2020 to April 15, 2021. On November 3, 2020, the Company and PRW Princeville Development Company LLC entered a termination and release agreement, terminating the Hanalei Retail License effective as of October 30, 2020.
On January 1, 2021, the Company entered into a lease agreement with PX2, LLC (“PX2”) for warehousing, distribution, and related industrial purposes. Under this agreement, the cost of rent which the Company will pay to PX2 is solely the reimbursement of utilities relating to the Company’s use (i.e., electric, janitorial, insurance, and other bills, which are estimated to be de minimis and not greater than $1,000 per month). The lease expired on December 31, 2021.
The Company executed a third lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated October 1, 2021. The lease commenced on October 1, 2021 with monthly payments of $38,869, to escalate after 24 months by the lesser of 3% or the CPI adjustment. The initial lease term is ten years, and the Company has the option to renew the lease for two additional five-year periods.
The following table sets forth the amounts of our significant contractual obligations and commitments with definitive payment terms as of December 31, 2021:
Payments Due by Period
Operating
Leases(1)
$
685,670
696,286
717,174
738,689
760,849
Thereafter
3,105,990
$
6,704,658
(1)Operating lease obligations related to our manufacturing facility leases dated March 1, 2018, December 17, 2018, and October 1, 2021.
Rent expense is allocated to general and administrative expenses and cost of goods sold upon the sale of inventory. Rent expense for the years ended December 31, 2021 and 2020 was $1,180,028 and $856,680, respectively.
11.Deferred Tax Assets and Liabilities
The Company had a tax net loss for the year ended December 31, 2021 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. A reconciliation of income tax expense at the federal statutory rate to the income tax provision at the Company's effective rate is as follows for the years ended December 31, 2021 and December 31, 2020:
December 31,
December 31,
Income tax (benefit) expense at statutory rates
$
(4,972,657
)
$
(3,519,871
)
Valuation allowance for deferred tax assets
4,987,902
2,978,937
Stock-based compensation
105,126
592,048
Other, net
(102,537
)
(51,114
)
Reported income tax (benefit) expense
17,834
-
Effective tax rate:
0.08
%
0.00
%
The Company’s deferred tax assets and liabilities consisted of the following as of December 31, 2021 and 2020:
December 31,
December 31,
Noncurrent deferred tax assets:
Net operating loss carryforwards
$
11,999,882
$
7,444,857
Property and equipment
686,601
671,562
Research and development credits
165,216
106,526
Accrued expenses
98,296
75,702
Charitable contributions
38,447
-
Unexercised options
679,688
-
Total noncurrent deferred tax assets
13,668,130
8,298,647
Noncurrent deferred tax liabilities:
Deferred rent asset
568,787
735,537
Intangible assets
(17,951
)
-
Total noncurrent deferred tax liabilities
550,836
735,537
Net noncurrent deferred tax assets
13,117,294
7,563,110
Valuation allowance
(13,124,828
)
(7,563,110
)
Total net noncurrent deferred tax liabilities
$
(7,534
)
$
-
The Company assesses its deferred tax assets and liabilities to determine if it is more likely than not they will be realized; if not, a valuation allowance is required to be recorded. During the year ended December 31, 2021, the Company recorded an indefinite-lived deferred tax liability of $37,669 to account for the book vs. tax basis difference related to the goodwill intangible asset acquired in the Picky Bars acquisition and an indefinite-lived deferred tax asset of $30,135 related to the net operating losses ("NOL") incurred after 2017 that do not expire under the Tax Cuts & Jobs Act of 2017 ("TCJA"), netting to a $7,534 "naked credit." The indefinite-lived deferred tax liability must be excluded from sources of future taxable income, as the timing of its reversal cannot be predicted due to the indefinite life of the goodwill and the NOLs. As such, this indefinite-lived deferred tax liability cannot be used to reduce the valuation allowance for U.S. federal income tax purposes.
Apart from the $7,534 deferred tax expense mentioned above, as of December 31, 2021, the Company did not provide a current or deferred U.S. federal 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 definite-lived deferred tax assets. The Company may reduce the valuation allowance against definite-lived deferred tax assets at such 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 $10,300.
The change in the valuation allowance for deferred tax assets and liabilities for the year ended December 31, 2021 was a net increase of $5,561,718. At December 31, 2021 and December 31, 2020, the Company had U.S. federal net operating losses (“NOLs”) totaling approximately $48,037,477 and $28,188,867, respectively. The Company had federal NOLs at December 31, 2021 totaling approximately $1,868,077 from 2017 and prior years that can be carried forward for 20 years, which begin to expire in 2036. At December 31, 2021 and December 31, 2020, the Company had federal NOLs totaling approximately $46,169,400 and $26,320,790, respectively from 2018 and subsequent years that can be carried forward indefinitely. The Company had state NOLs totaling $24,432,745 that can be carried forward for between 15 and 20 years. The Company had credits totaling $405,289 that can be carried forward for between 5 and 20 years.
GAAP requires management to evaluate and report information regarding its exposure to various tax positions taken by the Company. The Company has determined whether there are any tax positions that have met the recognition threshold and has measured the Company’s exposure to those tax positions. Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. U.S. and state jurisdictions have statutes of limitations that generally range from 3 to 5 years.
12.Stock Incentive Plan
The Company adopted an incentive plan (the “2020 Omnibus Incentive Plan”) on September 22, 2020, to provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards and cash bonus awards to Company employees, employees of the Company’s affiliates, non-employee directors and certain consultants and advisors. The Company is authorized to award 1,355,715 shares under the 2020 Omnibus Incentive Plan. Previously, the Company had adopted its 2018 Equity Incentive Plan and 2016 Stock Incentive Plan (together with the 2020 Omnibus Incentive Plan, the “Stock Incentive Plans”), under which the Company had issued stock options and restricted stock units. Following the effective date of the 2020 Omnibus Incentive Plan, no additional awards may be made under the 2018 Equity Incentive Plan or 2016 Stock Incentive Plan. The Stock Incentive Plans were established to provide eligible individuals with an incentive to contribute to the Company’s success and to operate and manage the Company’s business in a manner that will provide for its long-term growth and profitability and that will benefit the Company’s shareholders and other stakeholders, including employees and customers. The Stock Incentive Plans are also intended to provide a means of recruiting, rewarding, and retaining key personnel.
The Stock Incentive Plans prescribe various terms and conditions for the award of options and the total number of shares authorized for this purpose. For options, the strike price is equal to the fair market value of the Company’s stock price at the date of grant. Generally, options become exercisable based on years of service and vesting schedules, and expire after (i) a period of ten years from the date of grant, (ii) three months following the date of termination of employment from the Company, (iii) one year following the date of termination from the Company by reason of death or disability, (iv) the date of termination of employment for cause, or (v) the fifth anniversary of the date of the grant if it is held by a 10 percent or greater stockholder.
The following table summarizes the Company’s stock option activity during the years ended December 31, 2021 and 2020:
December 31, 2021
Options
Activity
Weighted Average
Exercise Price
(per share)
Weighted Average
Remaining Contractual
Term (years)
Aggregate
Intrinsic Value
Balance at January 1, 2021
887,640
$
9.65
6.42
$
33,433,274
Granted
56,541
20.78
Exercised/released
(100,211
)
8.31
Cancelled/forfeited
(96,170
)
15.57
Balance at December 31, 2021
747,800
$
11.51
6.57
$
1,143,013
Exercisable at December 31, 2021
552,512
$
8.12
6.04
$
2,714,963
December 31, 2020
Options
Activity
Weighted Average
Exercise Price
(per share)
Weighted Average
Remaining Contractual
Term (years)
Aggregate
Intrinsic Value
Balance at January 1, 2020
788,528
$
8.42
7.17
$
4,799,381
Granted
174,078
16.07
Exercised/released
(23,434
)
11.34
Cancelled/forfeited
(51,532
)
11.53
Balance at December 31, 2020
887,640
$
9.65
6.42
$
33,433,274
Exercisable at December 31, 2020
660,890
$
6.94
5.55
$
26,684,957
The stock-based compensation expense is recognized ratably over the requisite service period for all awards. As a result of applying the provisions of ASC 718, “Compensation- Stock Compensation” (“ASC 718”), the Company recognized stock compensation expense of $4,040,207 and $2,318,502 for the years ended December 31, 2021 and 2020, respectively.
During the years ended December 31, 2021 and 2020, the Company granted 56,541 and 174,078 stock option units, respectively, to employees. As a result of applying the provisions of ASC 718 to these issuances, the Company recorded stock-based compensation expense of $772,832 and $937,366, respectively. As of December 31, 2021 and 2020, there was $1,638,717 and $1,990,834, respectively, of total unrecognized compensation cost related to non-vested stock option share-based compensation arrangements with a remaining weighted-average vesting period of 1.83 years and 1.06 years, respectively.
During the year ended December 31, 2021, there were $219,158 of payroll taxes withheld from stock-based compensation which were remitted directly to the tax authorities on the behalf of the recipients of the awards. There were no payroll taxes withheld from stock-based compensation for remittance directly to the tax authorities on the behalf of the recipients of the awards during the year ended December 31, 2020.
On September 23, 2020, the Company entered into an amended employment agreement with its Chief Marketing and Revenue Officer (the “Employment Agreement”), which automatically ended on December 31, 2020, the date upon which the employee retired from the Company. Among other terms of the Employment Agreement, the Company agreed to, upon retirement and entry into customary documentation at such time, extend the term of 109,024 stock options to December 31, 2025, resulting in incremental stock-based compensation expense recognized of $448,229 for the year ended December 31, 2020.
During the year ended December 31, 2020, the Company granted 15,646 shares of common stock to six employees which were fully vested as of the date of issuance and were granted and valued at the observable price for similar instruments. As a result of applying the provisions of ASC 718, the Company recorded stock-based compensation expense of $576,341 for the year ended December 31, 2020.
During the year ended December 31, 2021, the Company granted 93,959 restricted stock units to 173 employees. As a result of applying the provisions of ASC 718 to these issuances, the Company recorded stock-based compensation expense of $1,516,390 and $287,101 in the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and December 31, 2020, there was $2,282,174 and $1,613,520, respectively, of total unrecognized compensation cost related to non-vested restricted stock units with a remaining weighted-average vesting period of 2.20 years and 1.89 years, respectively.
During the year ended December 31, 2021, the Company granted 189,608 market-based stock units (“MSUs”), respectively, to eight employees based on the agreed upon amounts in the market-based restricted stock unit agreements. As a result of applying the provisions of ASC 718 to these issuances, the Company recorded stock-based compensation expense of $1,716,080 for the year ended December 31, 2021. These MSUs vest upon the 30-day weighted average stock price reaching or exceeding established targets, after reaching certain time targets. As of December 31, 2021 there was $1,927,898 of total unrecognized compensation cost related to non-vested MSUs with a remaining weighted-average vesting period of 2.09 years. We estimate the grant-date fair value of the MSUs using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rate of return and dividend yield. Expected volatilities within the index are derived using historical volatilities of a selected peer group over a period equal to the length of the performance period. We base the risk-free rate of return on the yield of a zero-coupon U.S. Treasury bond with a maturity equal to the performance period and assume a 0% dividend rate. Compensation expense for these MSUs is recognized over the requisite service period regardless of whether the market conditions are satisfied.
On May 1, 2021, the Company enacted an enrollment period under its 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 shares at the lower of 85% of the market value of a share of our common stock on the enrollment date or the exercise date. Participants may terminate their interest in a given offering or a given exercise period by withdrawing all of their accumulated payroll deductions at any time prior to the end of the offering period. The fair value of the estimated number of shares to be issued under each offering is determined using a component valuation model. During the year ended December 31, 2021, the Company issued 4,398 shares of common stock in connection with the ESPP. There are an estimated 1,166 shares of common stock issuable on April 30, 2022 included in payroll liabilities as of December 31, 2021. As a result of applying the provisions of ASC 718 to these issuances, the Company recorded stock-based compensation expense of $36,194 for the year ended December 31, 2021.
ASC 718 requires the use of the fair-value-based method for measuring the value of stock-based compensation. The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option-pricing model, the MSUs on the grant date using a Monte Carlo simulation, and each restricted stock unit is estimated using the fair value of the Company’s stock on the date of grant. The estimated fair value of each grant of stock options awarded during the years ended December 31, 2021 and 2020 was determined using the following assumptions:
•Expected Term. Due to the lack of a public market for the trading of shares of the Company’s common stock prior to the Company’s IPO that closed on September 25, 2020, and the lack of sufficient Company-specific historical data, the expected term of employee stock options is determined using the “simplified” method, as prescribed in SEC Staff Accounting Bulletin (“SAB”) No. 107 (“SAB 107”), whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.
•Risk-free Interest Rate. The risk-free interest rate is based on the interest rate payable on United States Treasury yield curve in effect at the time of grant for a period that is commensurate with the assumed expected term.
•Dividend Yield. The dividend yield is 0% because the Company has never paid, and for the foreseeable future does not expect to pay, dividend on its shares of common stock.
•Expected Volatility. The expected volatility is based on the volatility of the historical stock prices of identified peer companies.
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 years ended December 31, 2021 and 2020, the grant-date fair value of stock options was estimated at the time of grant using the following weighted-average inputs and assumptions in the Black-Scholes option pricing model:
For the Years Ended
December 31,
Weighted-average expected volatility
52.12
%
71.29
%
Weighted-average expected term (years)
6.23
6.23
Weighted-average expected risk-free interest rate
0.72
%
0.69
%
Dividend yield
-
-
Weighted-average fair value of options granted
$
20.78
$
18.28
13.Preferred Stock
On September 25, 2020, the Company completed its IPO in which the Company issued and sold 3,047,500 shares of its common stock at a public offering price of $22.00 per share. Upon the closing of the IPO, all outstanding shares of the Company’s preferred stock converted into shares of common stock, consisting of (i) 162,340 outstanding shares of Series A-1 convertible preferred stock converting into 324,680 aggregate shares of common stock, (ii) 152,253 outstanding shares of Series A-2 convertible preferred stock converting into 304,506 aggregate shares of common stock, and (iii) 383,142 outstanding shares of Series B-1 convertible preferred stock converting into 766,284 aggregate shares of common stock.
As of December 31, 2021 and 2020, the Company is authorized to issue 5,000,000 shares of preferred stock, par value $0.001 per share, and there were no shares of preferred stock issued or outstanding.
Series A-1 and A-2 Preferred Stock
Effective November 19, 2018, the Company executed a capital transaction of $25,000,000 with a private investor, with $15,000,000 funded at the closing date and an additional $10,000,000 to be funded one year following the execution. The additional tranche was determined to be embedded in the initial agreement and not subject to bifurcation accounting. The investing entity received Series A-1 preferred stock, carrying certain standard protective provisions.
In conjunction with this equity infusion, in November and December 2018, the Company further sold to existing stockholders an additional $7,000,000 of shares of Series A-1 and A-2 preferred stock.
All shares of Series A-1 and A-2 preferred stock issued are convertible into common stock at any time at the option of the holder, or mandatorily convertible into common stock upon the event of an initial public offering. The Series A-1 and A-2 preferred stock are redeemable upon the occurrence of a deemed liquidation event. The Company determined that this redemption feature requires classification of both Series A-1 and A-2 preferred stock as mezzanine equity in our balance sheet as of December 31, 2019.
Shares of Series A-2 preferred stock were issued at a 20% discount, based on preexisting terms in a line of credit agreement with East. As a result, the $673,133 was recorded as a reduction to additional paid-in-capital in 2018 and was considered a deemed dividend increasing the net loss attributable to common stockholders.
On November 18, 2019, the Company negotiated the repurchase of 609,013 shares of Series A-1 preferred stock from a private investor for $7,500,000, or $12.32 per share, and the termination of the private investor’s commitment to fund an additional $10,000,000 in November 2019. At the time of repurchase, the carrying value of the shares of Series A-1 preferred stock outstanding on the balance sheet was $14,999,901, or a value of $24.63 per share. The favorable rate at which the shares were able to be negotiated resulted in a deemed contribution of $7,448,879 which was included in net loss available to common stockholders.
Series B-1 and B-2 Preferred Stock
Effective April 13, 2020, the Company completed a private placement to DMV for 383,142 shares of its Series B-1 Preferred Stock for total proceeds of $10,000,006, or $26.10 per share. The shares of Series B-1 Preferred Stock issued were convertible into common stock at any time at the option of the holder, or mandatorily convertible into common stock upon the event of an initial public offering. The Series B-1 Preferred Stock were redeemable upon the occurrence of a deemed liquidation event. The Company determined that this redemption feature required classification of the Series B-1 Preferred Stock as mezzanine equity in our balance sheet.
In connection with the closing of the private placement of Series B-1 Preferred Stock on April 13, 2020, the Company entered into a Stockholder Agreement with DMV, under which the Company granted DMV (i) the right to purchase a specified percentage of the Company’s common stock in the event of an initial public offering of the Company’s common stock or in a concurrent private placement (the “Participation Right”), (ii) the right to designate one member to Laird Superfood’s board of directors, and (iii) the right to designate a representative as an observer to Laird Superfood’s board of directors, in each case for so long as DMV and its affiliates hold more than five percent of the shares of the Company’s outstanding common stock. The Participation Right terminated upon the IPO. On August 28, 2020, DMV waived its right to designate a member of the board of directors for election, contingent upon the IPO closing on or before December 31, 2020, but DMV’s right to designate an observer of the board of directors will continue for so long as DMV holds more than five percent of the outstanding common stock of the Company. The Company also issued a warrant to purchase common stock to DMV on April 13, 2020, which provided that if DMV exercised the Participation Right for $10,000,000 of shares of the Company’s common stock, DMV would have been entitled to purchase at the time of the closing of the offering, for $0.005 per share, a number of shares of the Company’s common stock equal to ten percent of the shares then held by DMV and its affiliates (including shares issuable upon conversion of the Series B-1 Preferred Stock), but excluding the amounts purchased by DMV or its affiliates in the offering or otherwise.
In accordance with ASC 480, the Company recorded the Series B-1 Preferred Stock issued with detachable warrants by allocating the proceeds to the instruments based on their relative fair values. Utilizing the Black-Scholes option pricing model, the Company calculated the fair value of the warrants on April 13, 2020 to be approximately $899,617. The fair value of the warrants was computed assuming a risk-free interest rate of 0.17%, no dividends, expected volatility of approximately 65%, which was calculated based on a combination of historical volatility and the history of comparable peer companies, and an expected warrant life of approximately 0.75 years. As a result, the relative fair value for the warrants of $825,366 was recorded as an increase to additional paid-in-capital and a preferred stock discount.
The discount was initially amortized as a deemed discount over approximately 11.5 months, which is estimated based on the expected timing of a warrant exercisability trigger and the customary lock-up agreement of six months once exercised. DMV purchased $2,000,020 of our common stock in a private placement immediately subsequent to the consummation of the IPO, which did not meet the participation minimum to exercise the warrant, rendering the warrants null, and accelerating the amortization. The Company recorded the deemed dividend on the warrants of $825,366 for the year ended December 31, 2020, increasing the net loss attributable to common stockholders.
14.Earnings per Share
Basic earnings (loss) per share is determined by dividing net loss attributable to Laird Superfood, Inc. common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is similarly determined, except that the denominator is increased to include the number of additional common and preferred shares that would have been outstanding if all dilutive potential common and preferred shares had been issued. Dilutive potential common and preferred shares consist of employee stock options and restricted stock units. The dilutive effect of employee stock options, restricted stock units, and convertible preferred stock issued by the Company and are calculated using the treasury stock method. The weighted average shares outstanding included 8,320 and 1,000 shares that are considered outstanding, but unissued, as of December 31, 2021 and 2020, respectively, for RSUs vested but not issued, and unpaid equity share bonuses. Basic earnings per share is reconciled to diluted earnings per share in the following table:
Years Ended December 31,
Net loss
$
(23,870,546
)
$
(12,850,301
)
Less deemed dividend of beneficial conversion feature
-
(825,366
)
Less deemed dividend on warrant discount
-
(825,366
)
Net loss attributable to Laird Superfood, Inc. common stockholders
(23,870,546
)
(14,501,033
)
Weighted average shares outstanding- basic and diluted
8,983,294
5,546,078
Common stock options and restricted stock awards excluded due to
anti-dilutive effect
839,050
945,027
Basic and diluted:
Net loss per share, basic and diluted
$
(2.66
)
$
(2.61
)
15.Concentrations
The Company had 57% of trade accounts receivable from three customers as of December 31, 2021. The Company had 70% of trade accounts receivable from three customers as of December 31, 2020.
The Company had 12% of accounts payable due to one vendor as of December 31, 2021. The Company had 43% of accounts payable due to four vendors as of December 31, 2020.
The Company sold a substantial portion of products to one customer (13%) for the year ended December 31, 2021. As of December 31, 2021, the amount due from this customer was $333,435. The Company sold a substantial portion of products to one customer (23%) for the year ended December 31, 2020. As of December 31, 2020, the amount due from this customer included in accounts receivable was $290,420.
The Company purchased a substantial portion of products from one supplier (48%) for the year ended December 31, 2021. The Company purchased a substantial portion of products from one supplier (36%) for the year ended December 31, 2020.
In addition, our top suppliers are in a similar geographic area, which increases the risk of significant supply disruptions from local and regional events. Indonesia, Sri Lanka, and Vietnam geographically accounted for approximately 64% of our total raw materials and packaging purchases for the year ended December 31, 2021. Vietnam, Indonesia, China, and Sri Lanka geographically accounted for approximately 69% of our total raw materials and packaging purchases for the year ended December 31, 2020.
16.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 consolidated financial statements can evaluate their significance. The Company conducts business with suppliers and service providers who are also stockholders of the Company. From time to time, service providers are offered shares of common stock as compensation for their services. Shares provided as compensation are calculated based on the fair value of the service provided and the most recent equity offering price (or market price post-IPO) per share. Additional material related party transactions are noted below.
License Agreements
On May 26, 2020, the Company executed a License and Preservation Agreement which superseded the predecessor license and preservation agreement with both Mr. Hamilton and Ms. Reece. Among other modifications, the agreement (i) modified certain approval rights, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additional ten-year terms upon the expiration of the initial one-hundred-year term. No additional consideration was exchanged in connection with the agreement. See additional discussion related to the 2020 License in Note 1 of the consolidated financial statements.
Concurrent Private Placement
DMV purchased 90,910 shares of our common stock in a private placement immediately subsequent to the consummation of the IPO for a total purchase price of $2,000,020, at a price per share of $22. Additionally, DMV provided the Company $298,103 in funds for the purpose of supporting three COVID-19 relief projects. See Note 1 of the consolidated financial statements for additional discussion.
No-Charge Storage Lease
On January 1, 2021, the Company entered into a lease agreement with PX2, LLC (“PX2”) for warehousing, distribution, and related industrial purposes. Under this agreement, the cost of rent which the Company will pay to PX2 is solely the reimbursement of utilities relating to the Company’s use (i.e., electric, janitorial, insurance, and other bills, which are estimated to be de minimis). Paul Hodge, former CEO, President, and Director of the Company, is a member of PX2. This contract is expressly intended to provide no individual benefit to such individual, with the Company only responsible for incremental costs due to the Company’s use of the property, otherwise the property is utilized without obligation to the Company, as a gratis convenience by PX2. This lease expired on December 31, 2021.
Social Media Marketing Agreements
The Company entered into social media marketing agreements with Lauren Thomas and Stephanie Bruce to provide certain marketing services on an annual basis, for $40,000 each per annum. The Company entered into a social media marketing agreements with Jesse Thomas to provide certain marketing services at no cost to the Company.
Asset Purchase Agreement
The Company entered into an agreement to purchase a used air compressor from Px2, an entity owned by Paul Hodge, in the amount of $1,000.
17.Revenue Recognition
The Company’s primary source of revenue is sales of coffee creamers, hydration and beverage enhancing supplements, harvest snacks and other food items, and coffee, tea and hot chocolate products. The Company recognizes revenue when control of the promised good or service is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales. Each delivery or shipment made to a third-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collection of the sales price under normal credit terms. Additionally, the Company estimates the impact of certain common practices employed by us and other manufacturers of consumer products, such as scan-based trading, product rebate and other pricing allowances, product returns, trade promotions, sales broker commissions and slotting fees. These estimates are recorded at the end of each reporting period.
In accordance with ASC Topic 606, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:
Years Ended December 31,
$
% of Total
$
% of Total
Coffee creamers
$
21,767,409
%
$
18,432,236
%
Hydration and beverage enhancing supplements
5,814,629
%
3,893,406
%
Harvest snacks and other food items
5,228,888
%
135,509
%
Coffee, tea, and hot chocolate products
7,108,361
%
5,922,017
%
Other
808,352
%
588,754
%
Gross sales
40,727,639
%
28,971,922
%
Shipping income
457,879
%
248,865
%
Returns and discounts
(4,374,565
)
(11
%)
(3,437,561
)
(13
%)
Sales, net
$
36,810,953
%
$
25,783,226
%
The Company generates revenue through three channels: online, wholesale, and food service:
For the Years Ended December 31,
$
% of Total
$
% of Total
Online
$
22,687,736
%
$
14,501,706
%
Wholesale
13,598,792
%
10,773,345
%
Food service
524,425
%
508,175
%
Sales, net
$
36,810,953
%
$
25,783,226
%
Contract assets (deferred costs of goods sold associated with deferred revenue), contract liabilities (deferred revenue, customer deposits, rewards programs), and refund liabilities (accrued returns) have been estimated and recorded as of December 31, 2021 and 2020. Contract assets included in finished goods inventories were $8,316 and $0 as of December 31, 2021 and December 31, 2020, respectively. Contract liabilities and refund liabilities included in accrued expenses were $25,340 and $15,160 as of December 31, 2021, respectively. Contract liabilities and refund liabilities included in accrued expenses were $0 and $28,968 as of December 31, 2020, respectively. Receivables from contracts with customers are included in Accounts receivable on the Company’s balance sheets. As of December 31, 2021 and 2020, Accounts receivable included, $1,268,718 and $839,659, respectively, in receivables from contracts with customers.
18.Impact of COVID-19
Since January of 2020, the coronavirus (COVID-19) outbreak, characterized as a pandemic by the World Health Organization on March 11, 2020, has caused significant disruptions in international and U.S. economies and markets. In 2020 and thereafter, demand for our shelf-stable powdered coffee creamers, hydration and beverage enhancing supplements, and coffee, tea and hot chocolate products has risen as consumers prepare more meals in their homes. As we work in a critical infrastructure industry as part of the nation’s food supply, we have implemented health and safety policies for all of our staff, including a transition to telework wherever reasonably possible; enacted strict sanitation protocols throughout our operations; and restricted access to visitors. Our top priority is the health and safety of our employees, and we are following published guidelines by the Centers for Disease Control and Prevention and other governmental health organizations in implementing procedures to protect our employees. The pandemic is an ever evolving and challenging situation and its impact on our business in the future is uncertain.
19.Quarterly Results of Operations (Unaudited)
The following tables present selected unaudited quarterly financial data for each full quarterly period of 2021 and 2020:
(unaudited)
December 31
September 30
June 30
March 31
Four Quarters
Statement of Operations Data:
Sales, net
$
9,367,559
$
10,865,914
$
9,180,584
$
7,396,896
$
36,810,953
Cost of goods sold
(7,153,814
)
(7,667,075
)
(6,998,695
)
(5,559,498
)
(27,379,082
)
Gross profit
2,213,745
3,198,839
2,181,889
1,837,398
9,431,871
Operating expenses:
General and administrative
4,398,830
4,254,124
4,162,912
3,643,396
16,459,262
Research and product development
171,984
242,604
374,853
240,686
1,030,127
Sales and marketing
4,661,135
4,014,753
3,921,289
3,297,721
15,894,898
Total operating expenses
9,231,949
8,511,481
8,459,054
7,181,803
33,384,287
Operating loss
(7,018,204
)
(5,312,642
)
(6,277,165
)
(5,344,405
)
(23,952,416
)
Other income
63,458
10,721
11,624
13,901
99,704
Loss before income taxes
(6,954,746
)
(5,301,921
)
(6,265,541
)
(5,330,504
)
(23,852,712
)
Income tax benefit (expense)
68,661
(49,777
)
(36,718
)
-
(17,834
)
Net loss
$
(6,886,085
)
$
(5,351,698
)
$
(6,302,259
)
$
(5,330,504
)
$
(23,870,546
)
Net loss per share, basic and diluted
$
(0.76
)
$
(0.59
)
$
(0.70
)
$
(0.60
)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted
9,067,235
9,001,912
8,967,797
8,894,495
(unaudited)
December 31
September 30
June 30
March 31
Four Quarters
Statement of Operations Data:
Sales, net
$
7,284,729
$
7,490,642
$
5,524,630
$
5,483,225
$
25,783,226
Cost of goods sold
(5,819,762
)
(5,734,144
)
(4,285,128
)
(3,365,608
)
(19,204,642
)
Gross profit
1,464,967
1,756,498
1,239,502
2,117,617
6,578,584
Operating expenses:
General and administrative
3,177,447
2,218,820
1,832,443
1,599,569
8,828,279
Research and product development
144,180
102,879
117,797
143,314
508,170
Sales and marketing
2,650,359
2,816,630
2,311,501
2,392,816
10,171,306
Total operating expenses
5,971,986
5,138,329
4,261,741
4,135,699
19,507,755
Operating loss
(4,507,019
)
(3,381,831
)
(3,022,239
)
(2,018,082
)
(12,929,171
)
Other income
13,423
26,746
15,847
22,854
78,870
Net loss
(4,493,596
)
(3,355,085
)
(3,006,392
)
(1,995,228
)
(12,850,301
)
Less deemed dividend of beneficial conversion feature
-
-
(825,366
)
-
(825,366
)
Less deemed dividend on warrant discount
-
(645,939
)
(179,427
)
-
(825,366
)
Net loss attributable to Laird Superfood, Inc. common stockholders
$
(4,493,596
)
$
(4,001,024
)
$
(4,011,185
)
$
(1,995,228
)
$
(14,501,033
)
Net loss per share, basic and diluted
$
(0.51
)
$
(0.86
)
$
(0.93
)
$
(0.47
)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted
8,876,431
4,672,041
4,325,265
4,281,346

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGR EEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our consolidated financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on the assessment by our management, we determined that our internal control over financial reporting was effective as of December 31, 2021.
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption established by the JOBS Act for emerging growth companies.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors of the Company
Our Board of Directors consists of seven directors and is not classified. The directors hold office from election until the next Annual Meeting of Stockholders and until their successors are elected and qualified or until their death, resignation or removal.
Biographical information for each director, including age, term of office, and business experience, including directorships with publicly traded companies during the past five years is listed below. In addition, for each person, we have included information regarding the business or other experience, qualifications, attributes, or skills that factored into the determination by the nominating and corporate governance committee and our Board that each such person should serve as a director.
Geoffrey T. Barker
Independent Chairman
Director Since 2020
Age 60
Other Public Boards:
● Smartsheet, Inc.
Experience and Expertise
Mr. Barker has been a member of our Board of Directors, and Chairman, since our IPO in September 2020. Mr. Barker has been a member of the Board of Directors of Smartsheet, Inc. (NYSE: SMAR), since 2012, and its Chair since 2016. Mr. Barker cofounded RPX Corporation, a provider of patent risk management solutions, and from 2008 to July 2016, Mr. Barker served in several positions including as Director, Chief Operating Officer, and Co-CEO. Mr. Barker has co-founded several businesses, including Vigilos, Inc., an enterprise security solutions provider, and the Cobalt Group, an online marketing services company. In addition to Smartsheet, Mr. Barker currently serves on the board of directors of a number of private companies. Mr. Barker holds a B.A. in Economics from Tufts University and an M.B.A. from Columbia University.
Qualifications:
● Extensive entrepreneurial experience.
● Extensive operational and leadership experience.
● Public company board and financing experience.
Patrick Gaston
Independent
Director Since 2021
Age 64
Other Public Boards:
● Bed Bath & Beyond, Inc.
(through 2020)
Experience and Expertise
Mr. Gaston has served as a member of our Board of Directors since September 2021. Mr. Gaston is the former Chairman of the board of directors of Bed Bath & Beyond, Inc. (NASDAQ: BBBY), a publicly traded company with annual revenue of approximately $10 billion and stores in the United States, Puerto Rico and Canada. He had previously served as co-chair of the company’s Compensation Committee and is formerly a member of the company’s Audit Committee. Mr. Gaston is also President and CEO of PG Consulting, a management consulting company founded by Mr. Gaston in 2012 that assists corporations and non-profits in building Corporate Social Responsibility (CSR), ESG strategies, Strategic Planning, Private/Public Partnerships and Philanthropic strategies. He holds a B.A. in management from the University of Massachusetts and an M.B.A. from Northeastern University.
Qualifications
● Extensive leadership and Corporate Social Responsibility (CSR) experience.
● Public company board and committee experience.
Greg Graves
Independent
Director Since 2018
Age 61
Other Public Boards:
● Plug Power Inc. (through 2019)
Experience and Expertise
Mr. Graves has served as a member of our Board of Directors since 2018. He has served as Chief Financial Officer of Entegris, Inc. since April 2007, and previously served as Senior Vice President, Strategic Planning & Business Development. Prior to joining Entegris in September 2002, Mr. Graves held positions in investment banking and corporate development, including at Piper Jaffray, RBC (Dain Rauscher) and The Pillsbury Company. From May 2017 to June 2019, Mr. Graves served as a director and Chairman of the audit committee of Plug Power Inc. (NASDAQ: PLUG), an energy solutions provider. Mr. Graves has served on the Board of Directors of the Minneapolis Heart Institute Foundation since May 2016 and has been Chairman of the Audit and Finance Committee since April 2019. Mr. Graves holds a B.A. and Master’s in Accounting and Taxation from the University of Alabama and an M.B.A. from the University of Virginia.
Qualifications
● Extensive public company management experience.
● Financial reporting and accounting expertise.
● Significant enterprise risk management experience.
Laird Hamilton
Co-Founder & Chief Innovator
Director Since 2015
Age 58
Experience and Expertise
Mr. Hamilton co-founded Laird Superfood and has served as a member of our Board of Directors since its founding in 2015. Mr. Hamilton is an American athlete best known for his accomplishments in big wave surfing. Over the past 25 years, Mr. Hamilton has also been hailed as an innovator in several crossover board sports, including tow-in surfing, stand-up paddle boarding and hydrofoil boarding. For the past decade Mr. Hamilton has been focused on bringing his expertise and passion for fitness and nutrition to the masses. He has accomplished this by creating and co-founding several businesses focused on this mission. Most notably, in June 2015, Mr. Hamilton co-founded Laird Superfood, Inc. to focus on introducing his nutritional ideas to the broader public. Mr. Hamilton also co-created XPT Extreme Performance Training, a performance lifestyle brand, the following year to focus on his philosophies in exercise and lifestyle.
Qualifications
● Role as co-founder of the Company and his involvement in the development of the Company's products and direction.
● Extensive personal experience with athletic endeavors, nutrition, and innovation.
Grant LaMontagne
Independent
Director Since 2021
Age 65
Experience and Expertise
Mr. LaMontagne has served as a member of our Board of Directors since December 2021. Mr. LaMontagne has over 40 years of experience in the consumer packaged goods (“CPG”) industry, leading large consumer package goods customer organizations as SVP, Chief Customer Officer at Clorox Co. (NYSE: CLX) through 2013 and President, Consumer Sales/Customer Development, Kimberly-Clark North America through November 2017. He has a proven track record of building branded businesses and developing the people, capabilities and organizational structures necessary to achieve robust business results. Since January 2018, Mr. LaMontagne has served as a Senior Advisor for McKinsey & Company, focused specifically on creating single multifunctional strategic/demand plans driven by consumer segmentation, category growth ideas, and integrated commercial plans. He currently serves as the non-executive Board Chair for Acosta Sales & Marketing, one of the industry’s leading brand building agencies. Mr. LaMontagne holds a B.A. in Finance from the University of Massachusetts Amherst.
Qualifications
● Extensive consumer packaged goods (CPG) experience.
● Extensive sales and marketing experience.
● Extensive operational and leadership experience.
Maile Naylor, nee Clark
Independent
Director Since 2020
Age 48
Other Public Boards:
● BJ’s Wholesale Club
Experience and Expertise
Maile Naylor, nee Clark has served on our Board of Directors since our IPO in September 2020. Ms. Naylor, nee Clark has been a member of the Board of Directors of BJ’s Wholesale Club (NYSE: BJ) since 2019. Ms. Naylor, nee Clark spent twenty-five years working in the investment management industry analyzing and evaluating global consumer discretionary companies. She previously worked as an Investment Officer at MFS Investment Management, a global asset management company, from September 2005 until her retirement from the investment management industry in April 2018. Prior to that, Ms. Naylor, nee Clark also held positions at Scudder Kemper Investments and Wellington Management, each investment management firms. Ms. Naylor, nee Clark is currently a member of the Boston Ballet Board of Overseers. She holds a bachelor’s degree in Finance from Boston University and is a CFA charter holder.
Qualifications
● Extensive investment management experience and investment analyst experience.
● Financial reporting and accounting expertise.
Jason Vieth
President & Chief Executive Officer
Director Since 2022
Age 48
Experience and Expertise
Jason Vieth joined the Company as its President and Chief Executive Officer and as a director on January 31, 2022. Mr. Vieth’s extensive experience in the food and beverage industry includes his most recent position as Executive Vice President of Sovos Brands from January 2021, where he managed the Breakfast and Snacks Group. Mr. Vieth’s prior experience includes nearly a decade spent at WhiteWave Foods from January 2008 to April 2017, most recently as Senior Vice President and General Manager of the yogurt business that included Horizon Organic, Wallaby Organic, Silk and So Delicious. In addition, he has led other food and beverage businesses such as Poppi a producer of prebiotic soda, from April 2019 to January 2020, and Lifetime Fitness' Life Café from April 2017 to April 2020. In addition, Mr. Vieth has nearly a decade of management consulting experience between The Boston Consulting Group and Accenture. Mr. Vieth holds a B.S. in Finance from Miami University and an M.B.A. from the Kellogg School of Management at Northwestern University.
Qualifications
● Extensive operating and management experience in the food and beverage industry.
Director Qualifications
The nominating and corporate governance committee of the Board is tasked with annually considering the size, composition, and needs of the Board and, as appropriate, recommending the nominees for directors to the Board for approval. The nominating and corporate governance committee considers and evaluates suggestions from many sources regarding possible candidates for directors. Below are the general criteria for the evaluation of current and proposed directors:
•high standards of integrity, commitment and independence of thought, and judgment;
•diversity of talent, skill, and expertise sufficient to provide sound and prudent guidance with respect to all of our operations and interests, which may include experience at senior levels of business, or health-related endeavors;
•confidence and a willingness to express ideas and engage in constructive discussion with other Board members, management, and all relevant persons;
•ability to devote sufficient time, energy, and attention to corporate affairs;
•active participation in the decision-making process, willingness to make difficult decisions in our best interest and the interests of our stockholders and demonstrate diligence and faithfulness in attending Board and Committee meetings; and
•freedom from any conflict of interest that would impair the director’s ability to fulfill the responsibilities of a member of the Board.
We have no formal policy regarding board diversity, however a diverse board is an objective of the Company. The Board evaluates each individual in the context of the Board of Directors as a whole, with the objective of assembling a group that can best maximize the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas. There are no family relationships between our executive officers and directors.
Stockholder Nominations
The nominating and corporate governance committee will review and evaluate candidates submitted by stockholders for election to the Board, taking into consideration whether nominations are in accordance with the procedures to nominate directors set forth in our bylaws.
Executive Officers of the Company
The following table sets forth the name, age and position of each of our executive officers as of the date of this report:
Name
Position
Age
Jason Vieth
President, Chief Executive Officer and Director
Laird Hamilton
Co-Founder, Chief Innovator and Director
Valerie Ells
Chief Financial Officer
Scott McGuire
Chief Operating Officer
Jason Vieth - For biographical information, see “Directors of the Company.”
Laird Hamilton - For biographical information, see “Directors of the Company.”
Valerie Ells - Ms. Ells joined Laird Superfood in April 2018 as our Controller before serving as our CFO since April 2019. Prior to joining us, Ms. Ells was a Financial Planning and Analysis Senior Accounting Manager and Interim Chief Accounting Officer for First Interstate Bank (NASDAQ: FIBK) where she revamped the firm’s internal financial planning and analysis processes as well as external reporting processes for the SEC and other regulatory agencies from 2017 to 2018. From 2015 to 2017, Ms. Ells served as Controller of the Bank of the Cascades (NASDAQ: CACB) and as Assistant Controller from 2013 to 2015, where she was heavily involved in M&A due diligence and SEC reporting. From 2010 to 2013, she was the Assistant Controller for Omeros Corporation, a then newly public biotech firm, where she designed and implemented a Sarbanes-Oxley Act compliant internal control environment, and from 2007 to 2010, she worked as an auditor with KPMG, LLP, focusing on clients within the manufacturing industry. Ms. Ells is a licensed CPA in the State of Oregon.
Scott McGuire - Mr. McGuire joined the Company in November 2020, from Bonduelle Fresh Americas, a provider of plant based, fresh food products, where he most recently served as the Chief Supply Chain Officer and previously held other roles including in operations, sales and operations planning, demand planning and execution, customer service, agriculture purchasing and operations, and transportation and logistics. Before joining Bonduelle Fresh Americas in 2017, Mr. McGuire ran his own consulting practice, Joseph Logistics and Supply Chain Solutions, where he provided consulting services for various CPG clients, including Bonduelle Fresh Americas and Nestlé USA. Prior to that, Mr. McGuire served as Nestlé USA’s National Director of Logistics for the company’s Direct-Store Delivery division. He also previously served as Service and Distribution Director for PepsiCo’s Frito-Lay Division.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act and SEC regulations require the Company’s directors, certain officers and holders of more than 10% of the Company’s common stock to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. The reporting directors, officers and 10% shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. Based solely on our review of copies of such reports received and written representations from our directors and such covered officers, the Company believes that our directors and officers complied with all applicable Section 16(a) filing requirements during 2021, with the exception of one Form 4 filing by Mr. Hodge, dated July 20, 2021 and due July 16, 2021, and one Form 4 filing by Mr. McGuire, dated May 20, 2021 and due May 19, 2021, both of which were not reported in a timely manner due to an administrative oversight.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to all of our directors, officers and employees, including those officers responsible for financial reporting. A current copy of the code of business conduct and ethics is available under the Governance section of our website. We intend to disclose future amendments to the code or any waivers of its requirements on our website.
Identification of Audit Committee and Financial Expert
The Board has established an audit committee composed solely of independent directors. The members of the audit committee are identified below.
Members: Gregory B. Graves (Chair)
Grant LaMontagne
Maile Naylor, nee Clark
Geoffrey T. Barker
The Board has determined that each of the members of our audit committee satisfies the financial literacy and sophistication requirements of the SEC and the NYSE American listing rules. In addition, the Board has determined that each of Mr. Graves and Ms. Naylor, nee Clark qualifies as an audit committee financial expert under SEC and NYSE American rules. Under SEC rules, members of our audit committee must also meet heightened independence standards. The Board has determined that each of the members of our audit committee is independent under the applicable SEC and NYSE American listing rules.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
This section discusses the material components of the executive compensation program for our named executive officers (“NEOs”) who are named in the “Summary Compensation Table” below. As an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies.
Introduction
The information that follows provides an overview of the compensation provided to our NEOs who are listed in the table below, for the period of January 1, 2021 through December 31, 2021 (referred to herein as “fiscal 2021” or “2021”).
Name
Title
Paul Hodge Jr.
Former President and Chief Executive Officer
Valerie Ells
Chief Financial Officer
James Scott McGuire
Chief Operating Officer
Overall Philosophy and Objectives of Our Executive Compensation Programs
The overall philosophy of our compensation programs for the NEOs and other senior executives is to encourage and reward the creation of sustainable, long-term shareholder value. We identified the following objectives to help realize this goal:
Alignment with Shareholders
•Reward performance in a given year and achievements over a sustained period that are aligned with our shareholders’ interests.
Remain Competitive
•Attract, retain, and motivate the exceptional talent required to ensure our continued success.
Motivate Performance
•Ensure that the compensation program reinforces execution of overall strategy and achievement of our business objectives.
Reward Superior Performance
•Reinforce our pay-for-performance, entrepreneurial culture.
Elements of Compensation
The compensation program for our NEOs consists of the following elements of compensation, each described in greater depth below:
•base salaries;
•performance-based bonuses; and
•equity-based incentive compensation.
Base Salary
Base salaries are an annual fixed level of cash compensation that reflect each NEO’s role and responsibilities, and market considerations in the Pacific Northwest region.
The base salaries for our NEOs for 2021 are listed in the below table:
Name
Title
2021 Salary
Paul Hodge Jr.
Former President and Chief Executive Officer
$
350,000
Valerie Ells (1)
Chief Financial Officer
300,000
James Scott McGuire
Chief Operating Officer
265,000
(1) Effective November 16, 2021, Ms. Ells's annual base salary increased from $265,000 to $300,000.
Equity-Based Incentive Compensation
We pay equity-based compensation to our NEOs to link the long-term results achieved for our shareholders and the rewards provided to NEOs, thereby ensuring that such NEOs have a continuing stake in our long-term success.
For fiscal 2021, annual equity awards were delivered on February 1, 2021 in a combination of stock options, restricted stock units ("RSUs"), and market based restricted stock units ("MSUs"). The stock options and RSUs provided to our NEOs vest ratably over four years. The MSUs are earned if the trailing 30-trading-day volume weighted average price ("VWAP") is $100 or higher at any point within three years of the grant date. Fifty percent of earned awards vest upon earnout, with the remaining fifty percent vesting in equal parts upon the later of earnout and each of the second and third anniversaries of the grant date.
In August 2021, Ms. Ells received an additional grant of 7,086 RSUs as a retention award in light of the announced CEO transition. The award vests in one year.
Determining Executive Compensation
The Compensation Committee, guided by the principal objectives described in this section, approves the structure of the executive compensation program and administers the programs for our executive officers. The following describes the roles of key participants in the process.
Role of our Compensation Committee
The Compensation Committee has the responsibility to make and approve changes in the total compensation of our executive officers, including the mix of compensation elements and compensation values.
Role of our Compensation Consultant
The Company engages FW Cook to provide independent external advice regarding executive compensation and to provide a competitive market pay analysis for our NEOs. Neither FW Cook nor any of its affiliates maintain other direct or indirect business relationships with the Company or any of its affiliates other than the services provided to the Compensation Committee.
Peer Group
The Compensation Committee approved a peer group consisting of 17 companies that was used for benchmarking fiscal 2021 compensation. Given the Company’s size, product offerings, and unique market position, there are no direct competitors in the compensation peer group. Criteria used to identify the peer group companies include:
•Size - companies with revenue that generally range from 0.2x to 5x our total annual revenue.
•Business Focus - companies that are publicly traded and primarily in the foods, beverage, and tobacco industry.
The 17-company peer group consists of the companies listed below:
22nd Century
Alico
Bridgford Foods
Celsius
Coffee Holding
Craft Brew Alliance
Crimson Wine
Lifeway Foods
Limoneira
MamaMancini's
MGP Ingredients
NewAge
RiceBran Tech
Rocky Mtn Choc. Factory
S&W Seed
South Dakota Soybean
Willamette Val. Vineyards
Other Programs and Policies
Anti-hedging and Anti-pledging Policy
Under our Insider Trading Policy, our directors, executive officers, and other employees are prohibited from engaging in short-term trading or short sales and are prohibited from participating in tractions in put options, call options or other derivative securities. The Company strongly discourages hedging transactions. Any person wishing to enter into such an arrangement must first submit the proposed transaction for approval by the designated compliance officer, who will have sole discretion to decide whether to approve the proposed transaction. In addition, our directors, executive officers, and other employees are prohibited from holding our securities in a margin account and from pledging our securities as collateral for a loan, except as may be pre-approved by the Audit Committee.
Summary Compensation Table
The following table sets forth information concerning the compensation of our NEOs for the years ended December 31, 2021 and 2020:
Name and Principal Position
Year
Salary ($)
Option Awards ($) (1)
Bonus ($)
Stock Awards ($) (2)
All other compensation ($)
Total ($)
Paul Hodge
349,433
432,500
-
2,162,500
-
2,944,433
Former President and Chief Executive Officer
250,000
57,794
-
216,584
-
524,378
Valerie Ells
265,208
120,000
150,000
600,000
-
1,135,208
Chief Financial Executive
200,000
137,890
150,000
114,894
-
602,784
Scott McGuire
Chief Operating Officer
265,100
-
-
480,000
-
745,100
* Mr. Hodge resigned from his position as President and Chief Executive Officer on January 31, 2022.
(1) The amounts show in this column represent the aggregate grant-date fair value of stock options granted under our 2020 Omnibus Incentive Plan ("2020 Plan") to our named executive officers, as computed in accordance with FASB ASC Topic 718. The valuation assumptions used in calculating the fair value of the stock options are set forth in Note 12 to our audited consolidated financial statements appearing elsewhere in this report.
(2) This column reflects the aggregate grant date fair value of restricted stock units granted under our 2020 Plan to our named executive officers, as computed in accordance with FASB ASC Topic 718. The valuation assumptions used in calculating the fair value of the restricted stock units are set forth in Note 12 to our audited consolidated financial statements appearing elsewhere in this report.
Employment Arrangements
We have entered into employment agreements with each of our NEOs. The employment agreements do not provide for a fixed employment term and set forth the executive’s annual salary, target bonus, if any, eligibility for employee benefits, the terms of equity grants, customary proprietary information assignment provisions, and non-competition and non-solicitation restrictions. The key terms of employment with our named executive officers are further described below.
Paul Hodge
We entered into an employment agreement with Paul Hodge, our former President and Chief Executive Officer, effective January 1, 2018, which set forth the terms and conditions of his employment with us. We entered into an amended employment agreement with Mr. Hodge effective upon the closing of our IPO in September 2020. Commencing with calendar year 2021, Mr. Hodge received a base salary of $350,000 and was eligible for an annual bonus during each calendar year of the amended employment agreement, with a target bonus of 50% of base salary and a maximum bonus of 100% of base salary. Mr. Hodge was also eligible to receive equity awards under the 2020 Plan. The employment agreement also provided for certain payments upon the termination of Mr. Hodge’s employment with the Company, none of which resulted in payments when Mr. Hodge resigned as President and Chief Executive Officer on January 31, 2022. The amended employment agreement also contained customary confidentiality, non-competition and non-solicitation provisions.
Valerie Ells
We entered into an employment agreement with Valerie Ells, our Chief Financial Officer, when she was hired as our controller, effective April 1, 2018, which sets forth the terms and conditions of her employment with us. We entered into an amended employment agreement with Ms. Ells effective upon the closing of our IPO in September 2020. Commencing with calendar year 2021, Ms. Ells received an annual salary of $265,000 and is eligible for an annual bonus during each calendar year of the amended employment agreement, with a target bonus of 50% of base salary and a maximum bonus of 100% of base salary. Ms. Ells is also eligible to receive equity awards under the 2020 Plan. If Ms. Ells’ employment is terminated by the Company without “cause” or by Ms. Ells for “good reason” (each as defined in the amended employment agreement), Ms. Ells will be entitled to a lump sum payment equal to twelve months of base salary, plus payment of COBRA premiums for up to twelve months. If Ms. Ells’ employment is terminated by the Company without “cause” or by Ms. Ells for “good reason” within two years after the occurrence of a change in control (as defined in the amended employment agreement), Ms. Ells will be entitled to a lump sum payment equal to twenty-four months of base salary, plus payment of COBRA premiums for up to eighteen months. The amended employment agreement also contains customary confidentiality, non-competition and non-solicitation provisions. As of November 16, 2021, Ms. Ells received an annual salary of $300,000.
Scott McGuire
We entered into an employment agreement with Scott McGuire, our Chief Operating Officer, when he joined the Company on November 16, 2020, which sets forth the terms and conditions of his employment with us. The employment agreement provides for a base salary of $265,000 per year. Commencing with calendar year 2021, Mr. McGuire is eligible for an annual bonus during each calendar year of the employment agreement, with a target bonus of 50% of base salary and a maximum bonus of 100% of base salary. Mr. McGuire is also eligible to receive equity awards under the 2020 Plan. If Mr. McGuire’s employment is terminated by the Company without “cause” or by Mr. McGuire for “good reason” (each as defined in the employment agreement), Mr. McGuire will be entitled to a lump sum payment equal to twelve months of base salary, plus payment of COBRA premiums for up to twelve months. If Mr. McGuire’s employment is terminated by the Company without “cause” or by Mr. McGuire for “good reason” within two years after the occurrence of a change in control (as defined in the employment agreement), Mr. McGuire will be entitled to a lump sum payment equal to twenty-four months of base salary, plus payment of COBRA premiums for up to eighteen months. The employment agreement also contains customary confidentiality, non-competition and non-solicitation provisions.
Retirement Plans
We have not maintained, and do not currently intend to maintain, a defined benefit pension plan or nonqualified deferred compensation plan.
Outstanding Equity Awards and Year-End
The following table provides information regarding equity awards held by our NEOs that were outstanding as of December 31, 2021:
Option Awards
Stock Awards
Name
Number of securities underlying unexercised options
Option exercise price ($)
Option expiration date
Number of shares or units of stock that have not vested (#)
Market value of shares or units of stock that have not vested ($) (1)
Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)
Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) (1)
exercisable
unexercisable
Paul Hodge
50,000
-
2.00
2/23/2026
-
-
-
-
60,000
-
9.00
2/20/2028
-
-
-
-
4,141
12,425
(2)
13.05
4/14/2030
-
-
-
-
-
20,116
(3)
43.53
1/31/2031
-
-
-
-
-
-
-
9,936
(3)
89,722
-
-
-
-
-
76,821
693,694
Valerie Ells
15,000
5,000
(4)
9.00
3/10/2028
-
-
-
-
1,500
(5)
9.00
6/14/2028
-
-
-
-
9,000
9,000
(6)
12.32
4/30/2029
-
-
-
-
5,000
15,000
(7)
14.50
12/31/2029
-
-
-
-
2,485
7,455
(2)
13.05
4/14/2030
-
-
-
-
-
5,581
(8)
43.53
1/31/2031
-
-
-
-
-
-
-
2,757
(3)
35,951
-
-
-
7,086
(9)
92,401
-
-
-
-
-
21,314
277,935
Scott McGuire
2,500
7,500
(10)
47.99
11/15/2030
-
-
-
-
-
-
-
15,000
(10)
195,600
-
-
-
-
-
-
-
21,314
277,935
(1) The market value of unvested awards is calculated by multiplying the number of unvested shares held by the applicable named executive officer by the closing sales price of our common stock on December 31, 2021, the last trading day of the year, which was $13.04.
(2) These awards vest in four equal annual tranches ending April 15, 2024.
(3) These awards vest in four equal annual tranches ending February 1, 2026.
(4) These awards vest in four equal annual tranches ending April 1, 2022.
(5) These awards vest in four equal annual tranches ending June 15, 2022.
(6) These awards vest in four equal annual tranches ending May 1, 2023.
(7) These awards vest in four equal annual tranches ending January 1, 2024.
(8) These awards vest in four equal annual tranches ending February 1, 2025.
(9) These awards vest on August 18, 2022.
(10) These awards vest in four equal annual tranches ending November 16, 2024.
Non-Employee Director Compensation Program
At the time of our IPO, we adopted a non-employee director compensation plan covering non-employee directors. Under the plan, each non-employee director covered by the plan will receive an annual cash retainer and an annual grant of stock options and/or RSUs for board service, and if such non-employee director serves as a committee chair or a lead independent director, an additional annual cash retainer for such committee chair or lead independent director service. The Board has currently fixed the cash retainer for board service for non-employee directors at $45,000 per year, and the additional cash retainer for service as chairman of the Board or as lead independent director at $25,000 per year. The cash retainer for service as a member on a committee is fixed at $4,000 per year for each of the Nominating and Corporate Governance Committee and Compensation Committee and $7,000 per year for the Audit Committee, with an extra $4,000 per year for the chairs of the Nominating and Corporate Governance Committee and Compensation Committee and $7,000 per year for the chair of the Audit Committee. Cash retainers are paid quarterly in arrears, and directors joining mid year have their cash retainers prorated for actual service. Each non-employee director will receive an annual retainer equity award issued under the 2020 Omnibus Incentive Plan with the value of $55,000 on the grant date, which vests after one year. Each non-employee director may choose to have their equity awarded as stock options, RSUs, or a 50/50 split. Non-employee directors joining mid year will be provided a prorated annual award for the number of full months of expected service until the next annual shareholder meeting. Such grant will have the other terms provided for in the 2020 Omnibus Incentive Plan and the award agreement providing for such grant. Directors who are also employees, such as Messrs. Vieth and Hamilton and Mr. Hodge through January 2022, did not and will not receive any compensation for their services as directors.
No per meeting fees are paid, except that we reimburse non-employee directors for reasonable expenses incurred in connection with attending board and committee meetings.
All stock award granted pursuant to the Non-Employee Director Compensation Program are subject to the terms and provisions of the Laird Superfood, Inc. 2020 Omnibus Incentive Plan.
Director Compensation Table
The table below sets forth information on the compensation of all our non-employee directors for the year ended December 31, 2021. Paul Hodge, our former Chief Executive Officer, and Laird Hamilton, our Chief Innovator, were also members of the Board in fiscal 2021, but did not receive any additional compensation for service as a director.
Name
Fees earned or paid in cash
Option awards (1)
Stock awards (1)
Total
$
$
$
$
Geoffrey T. Barker
48,175
-
55,000
103,175
Jim Buechler (2)
26,038
-
55,000
81,038
Greg Graves
44,526
27,500
27,500
99,526
Maile Naylor, nee Clark
42,562
-
55,000
97,562
Thomas Wetherald (3)
-
-
55,000
55,000
Patrick Gaston
14,315
-
32,084
46,399
Grant LaMontagne
3,529
-
22,490
26,019
(1) The amounts in this column represent the grant date fair value of the awards as calculated under FASB ASC Topic 718. The assumptions made in valuing awards reported in these columns are discussed in Note 12 to our audited consolidated financial statements appearing elsewhere in this report.
(2) Mr. Buechler resigned from the Board on September 27, 2021
(3) Mr. Wetherald resigned from the Board on December 9, 2021. Mr. Wetherald declined to receive the cash portion of the retainer.
Outstanding Equity Awards for Directors at Fiscal Year-End
The following table provides information regarding equity awards held by our non-employee directors that were outstanding as of December 31, 2021:
Name
Options Outstanding
RSUs Outstanding
#
#
Geoffrey T. Barker
-
1,548
Jim Buechler
-
-
Patrick Gaston
-
1,718
Greg Graves
4,647
Grant LaMontagne
-
1,747
Maile Naylor, nee Clark
4,000
1,548
Thomas Wetherald
30,000
-
Role of the Board in Risk Oversight
The Board administers its role in the oversight of risk directly through the Board as a whole, as well as through various standing committees of the Board that address risks inherent in their respective areas. In particular, the Board monitors and assesses strategic risk exposure and our audit committee oversees our major financial risk exposures and the steps our management has taken to monitor and control these exposures. Our audit committee also monitors compliance with legal and regulatory requirements, including our food safety program, and considers and approves or disapproves any related person transactions. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance practices and of the Board. Our compensation committee assesses and monitors whether any of our compensation policies and programs have the potential to encourage excessive risk-taking. While each committee evaluates certain risks and oversees the management of such risks, our entire Board of Directors is regularly informed about the risks overseen by the committees through committee reports.
Risk assessment and oversight are an integral part of our governance and management processes. The Board encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the Board of Directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies and presents the steps taken by management to mitigate or eliminate such risks.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Ownership of Company Common Stock
The following table sets forth information concerning the “beneficial ownership” of our common stock as of December 31, 2021 by (i) those persons who we know to beneficially own more than 5% of our outstanding common stock; (ii) our directors as of December 31, 2021; (iii) the NEOs listed in the Summary Compensation Table; and (iv) all of our directors and executive officers as a group as of December 31, 2021. Under SEC rules, “beneficial ownership” for purposes of this table takes into account shares as to which the individual has or shares voting and/or investment power as well as shares that may be acquired within 60 days (such as by exercising vested stock options) and is different from beneficial ownership for purposes of Section 16 of the Exchange Act, which may result in a number that is different than the beneficial ownership number reported in forms filed pursuant to Section 16. The percentage of shares beneficially owned is computed on the basis of 9,094,539 shares of our common stock outstanding on December 31, 2021. An asterisk in the percent of class column indicates beneficial ownership of less than 1%. The beneficial owners listed have sole voting and investment power with respect to shares beneficially owned, except as to the interests of spouses or as otherwise indicated. Except as set forth below, the address for each beneficial owner listed is c/o Laird Superfood, Inc, 275 W. Lundgren Mill Drive, Sisters, Oregon 97759.
Name of Beneficial Owner
Number of Outstanding Shares Beneficially Owned
Number of Shares Exercisable Within 60 Days
Number of Shares Beneficially Owned
Percent of Class
Directors and Officers
Geoffrey Barker
73,509
-
73,509
*
Valerie Ells
17,422
40,069
57,491
*
Patrick Gaston
-
-
-
*
Greg Graves
2,127
3,000
5,127
*
Laird Hamilton
662,900
112,084
774,984
8.4
%
Paul Hodge
239,465
116,626
356,091
3.9
%
Grant LaMontagne
-
-
-
*
Scott McGuire
7,044
2,500
9,544
*
Maile Naylor, nee Clark
27,409
4,000
31,409
*
All current directors and executive officers as a group (9 persons)
1,029,876
278,279
1,308,155
14.0
%
Other 5% Shareholders
FMR LLC (1)
1,358,126
-
1,358,126
14.9
%
Danone Manifesto Ventures, PBC (2)
857,194
-
857,194
9.4
%
Thomas Wetherald (3)
723,905
30,000
753,905
8.3
%
BlackRock, Inc. (4)
689,804
-
689,804
7.6
%
*Indicates beneficial ownership of less than 1% of the total outstanding stock.
(1) Based solely on information contained in a Schedule 13G/A filed on February 9, 2022. The filing indicates that as of December 31, 2021, FMR LLC had sole voting power over 435,251 shares and sole dispositive power over 1,358,126 shares, and did not have any shared voting or dispositive power over any shares. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC. The address of FMR LLC is 245 Summer Street, Boston, MA 02210.
(2) Based solely on information contained in a Schedule 13G filed on October 2, 2020. Danone Manifesto Ventures, PBC is a wholly owned subsidiary of Danone North America Public Benefit Corporation, which is a wholly owned subsidiary of Compagnie Gervais Danone S.A., which is a wholly owned subsidiary of Danone S.A. Decisions regarding the voting or disposition of shares held by Danone Manifesto Ventures, PBC are made by the management of Danone Manifesto Ventures, PBC, provided that Danone S.A. may be deemed to share voting and dispositive power with respect to the shares held by Danone Manifesto Ventures, PBC. The address of Danone Manifesto Ventures, PBC and Danone North America Public Benefit Corporation is c/o Danone Manifesto Ventures, PBC, 12 West 21st St., 12th Floor, New York, New York 10010, and the address of Danone S.A. and Compagnie Gervais Danone S.A. is c/o Danone S.A., 17 boulevard Haussmann, 75009 Paris, France.
(3) Based solely on information contained in a Schedule 13G/A filed on February 14, 2022.
(4) Based solely on information contained in a Schedule 13G/A filed on February 4, 2022. The filing indicates that as of December 31, 2021, BlackRock, Inc. had sole voting power over 688,349 shares and sole dispositive power over 689,804 shares, and did not have any shared voting or dispositive power over any shares. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
Equity Compensation Plan Information
The following table provides information as of December 31, 2021 with respect to shares of our common stock that may be issued under our existing equity compensation plans.
Number of Shares to
be issued upon
exercise of
outstanding options,
and rights (#)
Weighted average
exercise price of
outstanding options and
rights ($) (1)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) (#) (2)
Equity Compensation plans approved by security holders
999,351
8.61
1,472,001
Equity compensation plans not approved by security holders
-
-
-
Total
999,351
8.61
1,472,001
(1) Reflects the weighted-average exercise prices of outstanding options. There is no exercise price for outstanding RSUs and MSUs.
(2) Consists of 1,272,001 shares of common stock reserved for issuance under our 2020 Omnibus Incentive Plan and 200,000 shares of common stock reserved for issuance under our 2020 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2020 Omnibus Incentive Plan automatically increases on the first day of each fiscal year beginning with the 2021 fiscal year by a number equal to four percent of the shares of common stock outstanding on the final day of the prior calendar year or such smaller number of shares as determined by the Company. The number of shares reserved for issuance under our 2020 Employee Stock Purchase Plan automatically increases on the first day of each fiscal year beginning with the 2021 fiscal year by a number equal to one percent of the shares of common stock outstanding on the final day of the prior calendar year or such smaller number of shares as determined by the plan administrator

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Policies and Procedures for Related Person Transactions
We adopted a written related person transaction policy, effective upon the closing of our IPO, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act of 1933, as amended (the “Securities Act”), any transaction, arrangement or relationship, or any series of similar transactions, arrangements, or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest. Types of transactions covered by this policy include, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including but not limited to whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction with an unrelated third party and the extent of the related person’s interest in the transaction.
Related Person Transactions
The following is a description of transactions since January 1, 2020 to which we have been or are to be a participant, in which the amount exceeds $120,000, and in which any of our directors, executive officers, or beneficial owners of more than 5% of any class of our voting securities, or any immediate family member of or person sharing a household with any of the foregoing persons, had or will have a direct or indirect material interest, other than employment relationships with our executive officers and compensation to our directors.
Agreements with Laird Hamilton and Gabrielle Reece
We entered into a License and Preservation Agreement, dated May 26, 2020, with Mr. Hamilton and Ms. Reece. Pursuant to the License and Preservation Agreement, Mr. Hamilton and Ms. Reece granted us a limited, exclusive license to use 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.
Pursuant to the License and Preservation Agreement, any use of the licensed property that is in accordance with the historical standard of use and is not objected to by Mr. Hamilton or Ms. Reece within thirty (30) days of the first intra-company disclosure of a bona-fide intent to make such use is deemed approved. Any new use of the licensed property shall satisfy the historical standard of use and shall be primarily directed to the advertising, promotion and/or marketing of the Company’s products and services.
2019 Common Stock Financing
From September 2019 through March 2020, we entered into subscription agreements with investors to purchase shares of our common stock at $14.50 per share for an aggregate purchase price of $11,695,903. Mr. Geoffrey Barker participated in the offering, subscribing for 17,241 shares at an aggregate purchase price of $499,989.
Series B Preferred Stock Financing and Related Documents
On April 13, 2020, the Company completed a private placement to a Danone Manifesto Ventures, PBC (“DMV”) for 383,142 shares of its Series B-1 preferred stock for total proceeds of $10,000,006, or $26.10 per share. The Series B preferred stock converted to common stock upon our IPO. In connection with the Series B financing, we reimbursed DMV $50,000 for its legal fees in connection with its investment.
Amended and Restated Investors’ Rights Agreement
In connection with our Series B financing, we entered into an Amended and Restated Investors’ Rights Agreement (the “A&R IRA”) with certain stockholders, including, among others who are, or were, executive officers and/or directors of the Company. The A&R IRA provides, among other things, that certain holders of our capital stock have the right to demand that we file a registration statement or request that their shares of our capital stock be covered by a registration statement that we are otherwise filing. At any time after twelve months after the closing of the IPO, the stockholders holding a majority of the registrable securities then outstanding, including DMV and its affiliates, may request that we register all or a portion of their shares on a registration statement. The A&R IRA also provides for piggyback registration rights. In addition to the registration rights, the A&R IRA provided for certain information rights and a right of first offer. The provisions of the A&R IRA, other than a limited number of provisions, including those relating to certain matters including registration rights, terminated upon the closing of the IPO.
Amended and Restated Right of First Refusal and Co-Sale Agreement and Amended and Restated Voting Agreement
In connection with our Series B financing, we entered an Amended and Restated Right of First Refusal and Co-Sale Agreement (the “A&R ROFR”), with certain stockholders, certain of which are beneficial holders of more than 5% of our capital stock, officers and directors of the Company and/or entities with which certain of our officers and directors are affiliated, including others who are, or were, executive officers and/or directors of the Company. The A&R ROFR terminated upon our IPO.
Stockholder Agreement and Warrant
In connection with our Series B financing, we entered into a Stockholder Agreement (the “Stockholder Agreement”), by and between the Company and DMV, under which we granted DMV a right to purchase a specified percentage of our securities, in the IPO or a concurrent
private placement (the “Participation Right”), the right to designate a member of the Board of Directors for election and the right to designate a representative as an observer of the Board of Directors, in each case for so long as DMV and its affiliates hold more than 5% of the shares of our outstanding common stock. DMV appointed Ms. Molly Breiner as a director upon the Series B financing, and Ms. Breiner resigned from the Board of Directors until August 1, 2021, at which time DMV appointed Ms. Clemence Delcourt as their new representative.
Concurrently with our IPO, we entered into a stock purchase agreement with DMV pursuant to which DMV agreed to purchase 90,910 shares of our common stock at a price per share equal to $22.00, for a total purchase price of $2,000,020. In addition, on August 28, 2020, DMV waived its right to designate a member of the Board of Directors for election.
In connection with our Series B financing, we issued a warrant to purchase common stock relating to its Participation Right. The conditions for the exercise of the warrant were not satisfied, and the warrant was terminated upon the IPO.
Other Transactions with Danone Manifesto Ventures, PBC
On December 3, 2020, the Company entered into an agreement with DMV for an additional capital contribution as a participant in the DMV COVID-19 Relief Fund. The agreement provided the Company with cash consideration of $298,103 for the purpose of supporting three relief projects: (1) continual sanitation rotation, (2) spend on increased labor, material and maintenance costs in the face of adversity, and (3) new/existing hospitals relief initiative.
Director Independence
The Board has determined that none of our directors other than Mr. Vieth, who is our President and Chief Executive Officer, and Mr. Hamilton, who is our Chief Innovator, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that Messrs. Barker, Gaston, Graves, and LaMontagne and Ms. Naylor, nee Clark are “independent” as that term is defined under NYSE American rules. In making these determinations, the Board considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section entitled “Related Party Transactions.”

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Relationship with Independent Registered Public Accounting Firm
The following table shows the fees that Moss Adams LLP (“Moss”) billed us for professional services rendered for 2021 and 2020:
Fee Category
Audit Fees
233,420
608,625
Audit-Related Fees
-
-
Tax Fees
-
-
All Other Fees
97,627
-
Total Fees
331,047
608,625
Audit Fees
“Audit Fees” includes fees for professional services provided by Moss in connection with the audit of our annual consolidated financial statements, review of quarterly consolidated financial statements included in our quarterly reports on Form 10-Q and Form 10-K, as well as services that are normally provided by Moss in connection with SEC filings, including comfort letters and consents issued in connection with securities offerings, consultations on matters addressed during the audit or interim reviews, and other services normally provided in connection with regulatory filings.
Audit-Related Fees
“Audit-Related Fees” includes fees for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not included above under “Audit Fees.” We did not incur any Audit-Related Fees for 2021 or 2020.
Tax Fees
“Tax Fees” includes fees for professional services provided by Moss for tax compliance, tax advice, and tax planning. We did not incur any Tax Fees for 2021 or 2020.
All Other Fees
“All Other Fees” includes fees for services provided by Moss that are not included in the other fee categories reported above. There were other fees totaling $97,627 for services provided by Moss in 2021, consisting of services relating to due diligence in connection with an acquisition. There were no other fees for 2020.
Audit Committee Pre-Approval Policies and Procedures
Moss provides the audit committee with information outlining the plan and scope of Moss’s proposed audit services to be performed during the year, which the audit committee reviews with Moss and management. The audit committee pre-approves all services provided by Moss, including audit services and non-audit services, to assure that they do not impair Moss’s independence. Audit committee pre-approval requirements are subject to an exception for certain de minimis non-audit services approved by the audit committee prior to the completion of an audit. None of the Moss services in 2021 and 2020 were approved by the audit committee pursuant to the de minimis exception. To ensure prompt handling of unexpected matters, the audit committee has specifically delegated to the Chair of the audit committee authority to pre-approve permissible non-audit services, subject to maximum dollar amounts. If the Chair exercises this delegation of authority, he reports the action taken to the audit committee at its next regular meeting.
PART IV.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)(1) Consolidated Financial Statements
See Index to Financial Consolidated Statements in Item 8 of this report.
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the information required is already included in the consolidated financial statements or the notes those consolidated financial statements.
(a)(3) EXHIBITS.
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
Incorporated by Reference
Exhibit
Number
Description
Form
File No.
Exhibit
Filing Date
Filed /
Furnished
Herewith
3.1
Amended and Restated Certificate of Incorporation of Laird Superfood, Inc.
8-K
001-39537
3.1
9/25/2020
3.2
Amended and Restated Bylaws of Laird Superfood, Inc.
8-K
001-39537
3.2
9/25/2020
4.1
Form of Stock Certificate for Common Stock.
S-1/A
333-248513
4.1
9/10/2020
4.2
Stockholder Agreement, dated April 13, 2020, between the Company and Danone Manifesto Ventures, PBC.
S-1
333-248513
4.3
8/31/2020
4.3
Description of Capital Stock
10-K
001-39537
4.3
3/16/2021
10.1#
Laird Superfood, Inc. 2020 Omnibus Incentive Plan.
S-8
333-248985
99.3
9/23/2020
10.2#
Form of Incentive Stock Option Agreement under the 2020 Omnibus Incentive Plan.
S-1/A
333-248513
10.2
9/10/2020
10.3#
Form of Non-Qualified Stock Option Agreement under 2020 Omnibus Incentive Plan.
S-1/A
333-248513
10.3
9/10/2020
10.4#
Form of Restricted Stock Award Agreement under the 2020 Omnibus Incentive Plan.
S-1/A
333-248513
10.4
9/10/2020
10.5#
Form of Restricted Stock Unit Agreement under the 2020 Omnibus Incentive Plan.
S-1/A
333-248513
10.5
9/10/2020
10.6#
Form of Indemnification Agreement for Directors and Officers.
S-1/A
333-248513
10.6
9/10/2020
10.7#
Laird Superfood, Inc. 2018 Equity Incentive Plan, and form of award agreement thereunder.
S-1
333-248513
10.6
8/31/2020
10.8#
Laird Superfood, Inc. 2016 Stock Incentive Plan, and form of award agreement thereunder.
S-1
333-248513
10.7
8/31/2020
10.9#
Laird Superfood 2020 Employee Stock Purchase Plan
S-8
333-248985
99.4
9/23/2020
10.10#
Form of Laird Superfood, Inc. Executive Bonus Plan
8-K
001-39537
10.1
3/10/2021
10.11#
Employment Agreement between the Company and Jason Vieth, effective January 31, 2022.
8-K
001-39537
10.1
1/31/2022
10.12#
Employment Agreement, dated September 10, 2020, between the Company and Valerie Ells.
8-K
001-39537
10.2
1/31/2022
10.13#
Employment Agreement, dated on November 16, 2020, between the Company and Scott McGuire.
X
10.14#
Employment Agreement, dated September 10, 2020, between the Company and Paul Hodge.
S-1/A
333-248513
10.11
9/10/2020
10.15#
Independent Contractor Agreement between the Company and Paul Hodge, effective January 31, 2022.
8-K
001-39537
10.2
1/31/2022
10.16
License and Preservation Agreement, dated May 26, 2020, by and among the Company, Laird Hamilton, and Gabrielle Reece.
S-1
333-248513
10.12
8/31/2020
10.17
Loan Agreement, dated August 10, 2017, between the Company and East Asset Management, LLC
S-1
333-248513
10.13
8/31/2020
10.18
Commercial Pledge Agreement, dated February 5, 2019, between the Company and First Interstate Bank, as amended February 26, 2020.
S-1
333-248513
10.14
8/31/2020
10.19
Amended Line of Credit Agreement, dated March 1, 2021, between the Company and First Interstate Bank.
10-Q
001-39537
10.2
5/13/2021
10.20
Form of Revolving Line of Credit Agreement, dated September 2, 2021, between the Company and Wells Fargo National Association.
10-Q
001-39537
10.1
11/10/2021
21.1
Subsidiaries of the Registrant
X
23.1
Consent of Independent Registered Public Accounting Firm.
X
24.1
Power of Attorney (included in signature page)
X
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).
X
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).
X
32.1*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
X
32.2*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
X
101.INS
inline XBRL Instance Document
X
101.SCH
inline XBRL Taxonomy Extension Schema Document
X
101.CAL
inline XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF
inline XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB
inline XBRL Taxonomy Extension Label Linkbase inline Document
X
101.PRE
inline XBRL Taxonomy Extension Presentation Linkbase Document
X
The cover page from Laird Superfood, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, formatted in Inline XBRL (included as Exhibit 101)
X
* 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 Annual Report on Form 10-K, irrespective of any general incorporation language contained in such.
# Indicates management contract or compensatory plan or arrangement.