10-Q

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 9, 2021 the registrant had 9,054,176 shares of common stock, $0.001 par value per share, outstanding.

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

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

In light of these risks, uncertainties and assumptions, you are cautioned not to place undue reliance on forward-looking statements, which are inherently unreliable and speak only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. When considering forward-looking statements, you should keep in mind the cautionary statements in this report. We qualify all our forward-looking statements by these cautionary statements. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1. Nature of Operations and Summary of Significant Accounting Policies

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

Nature of Operations

Laird Superfood 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 $1,350,815 were recognized as a reduction of additional-paid-in capital.

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

Concurrent Private Placement

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

Basis of Accounting

The financial statements include the accounts of the Company. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and rules and regulations of the Securities and Exchange Commission (“SEC”). Operating results include the three and nine months ended September 30, 2021 and 2020. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements.

Unaudited Interim Financial Information

In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in stockholders’ equity and cash flows. The balance sheet as of December 31, 2020 was derived from audited annual financial statements. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2021. The accompanying unaudited interim financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the fiscal year ended December 31, 2020.

Use of Estimates

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

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Notes to Unaudited Financial Statements

Business Combinations

Business combinations are accounted for under the acquisition method which requires identifiable assets acquired and liabilities assumed in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. The amount by which the net fair value of assets acquired, and liabilities assumed exceeds the fair value of consideration transferred as the purchase price is recorded as a bargain purchase gain. Acquisition-related transaction costs are expensed as incurred. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill or bargain purchase gain. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s Statements of Operations.

Segment reporting

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

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

See Note 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.


	September 30,		December 31,
	2021		2020
Cash and cash equivalents	$	30,934,843	$	56,973,896
Restricted cash		122,695		234,184
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	31,057,538	$	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 three and nine months ended September 30, 2021, we contributed $30,526 and $111,489, 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 September 30, 2021 and December 31, 2020 approximated $6,254,524 and $6,639,821, respectively.

Accounts Receivable, net

Accounts receivable, net consists principally of trade receivables, which are recorded at the invoiced amount, net of allowances for doubtful accounts. Trade receivables do not bear interest. Receivables are considered past due or delinquent according to contract terms. Management closely monitors outstanding balances and writes off accounts receivable as they are determined uncollectible. The Company provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing receivables. Based on these factors, management determined no allowance for doubtful accounts was required as of September 30, 2021 and December 31, 2020.

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Notes to Unaudited Financial Statements

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. The following table presents the components of inventory, net, as of:


	September 30,		December 31,
	2021		2020
Raw materials and packaging	$	5,463,224	$	4,109,706
Finished goods		4,872,766		2,186,192
Total inventory, net	$	10,335,990	$	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 three and nine months ended September 30, 2021, the Company recorded $39,880 and $168,436, respectively, in inventory obsolescence primarily related to the Company’s liquid creamer product line. For the three and nine months ended September 30, 2020, the Company recorded $102,158 and $291,198, respectively, in inventory obsolescence related to the Company’s liquid creamer product line.

As of September 30, 2021 and December 31, 2020, the Company had a total of $695,272 and $958,166, respectively, of prepayments for future raw materials inventory, net of reserve for prepaid assets of $179,000, which is included in prepaid expenses and other current assets, net on the balance sheets.

Property and Equipment, net

Property and equipment are valued at cost, net of accumulated depreciation. Expenditures for maintenance and repairs that do not extend the useful life or increase the value of the assets are charged to expense in the period incurred. Additions and betterments are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for depreciation purposes for furniture and factory equipment range from 3 to 10 years. The useful life for leasehold improvements is the lesser of the lease term or the useful life. Construction in progress is not depreciated until such a time that the assets are completed and placed into service. Depreciation expense is allocated to general and administrative expenses and cost of goods sold upon the sale of inventory. For the three and nine months ended September 30, 2021, depreciation expense was $152,139 and $454,400, respectively. For the three and nine months ended September 30, 2020, depreciation expense was $114,877 and $344,162, respectively.

As of September 30, 2021 and December 31, 2020, the Company had a total of $462,507 and $0, respectively, of deposits for future equipment purchases, which is included in deposits on the balance sheets.

Deferred Rent

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

Revenue Recognition

The Company recognizes revenue in accordance with the five-step model as prescribed by ASC Topic 606, Revenue from Contracts with a Customer, in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 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 for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.

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Notes to Unaudited Financial Statements

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 $1,675,438 and $4,506,386 for the three and nine months ended September 30, 2021, respectively. Shipping and handling costs totaled $1,132,630 and $2,721,567 for the three and nine months ended September 30, 2020, respectively. Income generated from shipping costs billed through to customers was included in Sales, net in the statements of operations. Shipping income totaled $195,085 and $261,495 for the three and nine months ended September 30, 2021, respectively. Shipping income totaled $25,737 and $221,082 for the three and nine months ended September 30, 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 $242,604 and $858,143 for the three and nine months ended September 30, 2021, respectively. Research and product development expense was $102,879 and $363,990 for the three and nine months ended September 30, 2020, respectively.

Advertising

Advertising costs are expensed when incurred. Advertising expenses for the three and nine months ended September 30, 2021 was $1,954,377 and $5,313,881, respectively. Advertising expenses for the three and nine months ended September 30, 2020 was $1,140,369 and $3,146,592, respectively.

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Notes to Unaudited Financial Statements

Marketing

Marketing costs are expensed when incurred. Marketing expenses for the three and nine months ended September 30, 2021 were $1,131,023 and $3,079,181, respectively. Marketing expenses for the three and nine months ended September 30, 2020 were $312,402 and $883,286, respectively.

Income Taxes

Income taxes provide for the tax effects of transactions reported in the financial statements and consist of income taxes currently due and deferred tax assets and liabilities. The Company may also be subject to interest and penalties from taxing authorities on underpayment of income taxes. In such an event, interest and penalties are included in income tax expense. Deferred tax assets and liabilities are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes) and net operating losses. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Due to the historical net loss position of the Company, the Company recorded a deferred tax valuation allowance of $12,695,954 and $7,563,110 as of September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 2021, the Company recorded a deferred tax liability of $86,495 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 reflect the historical stock repurchase transactions more clearly. There were no stock repurchase transactions for the three and nine months ended September 30, 2021. There were stock repurchases of $0 and $20,532 in the three and nine months ended September 30, 2020, respectively.

Stock Incentive Plan

The compensation cost relating to share-based payment transactions is recognized in the financial statements. The cost is measured based on the grant date fair value of the equity or liability instruments issued. Compensation cost for all employee stock awards is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for all consultant stock awards is calculated and recognized over the consultant’s service period based on the grant date fair value of the equity or liability instruments issued. Upon exercise of stock option awards or vesting of restricted stock units, recipients are issued shares of common stock. Pre-vesting forfeitures result in the reversal of all compensation cost as of the date of termination; post-vesting cancellation does not.

Earnings per Share

Basic earnings per share is computed on the basis of the weighted average number of shares of common stock that were outstanding during the period. Diluted earnings per share is similarly determined, except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all dilutive potential common stock and preferred stock had been issued and is calculated under the treasury stock method. Due to the Company’s net loss, all stock options and convertible preferred stock are anti-dilutive and excluded.

Stock Split

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

Warrants

Issued and detachable stock warrants are classified as equity or liability instruments based on the specific terms of the underlying warrant agreement. In circumstances where debt or equity is issued with detachable warrants, the proceeds from issuance are allocated to each instrument based on an acceptable method, which generally involves determining the fair value of one or more of the instruments. In conjunction with the Company’s IPO, the warrant outstanding was cancelled. See additional information in Note 13.

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Notes to Unaudited Financial Statements

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 September 30, 2021 and December 31, 2020, was valued at $132,000 and satisfied with the issuance of 660,000 shares of common stock. The Company has determined that the intangible asset associated with the LH License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 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 September 30, 2021 and December 31, 2020, was valued at $100 based on the consideration exchanged. The Company has determined that the intangible asset associated with the GR License has an indefinite life, as there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company. Please see Note 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 three and nine months ended September 30, 2021 and 2020.

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Notes to Unaudited Financial Statements

Definite Lived Intangible Assets, net

Definite lived intangible assets are valued at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for amortization purposes range between 3 and 10 years. Amortization expense is allocated to general and administrative expense. For the three and nine months ended September 30, 2021, amortization expense was $139,775 and $243,578, respectively. For the three and nine months ended September 30, 2020, amortization expense was $2,524 and $7,599, 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 three and nine months ended September 30, 2021 and 2020, we 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 financial statements may not be comparable to the financial statements of companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Adopted Accounting Pronouncements

There were no new accounting pronouncements adopted in the three and nine months ended September 30, 2021 and 2020, respectively.

Recently Issued Accounting Pronouncements

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

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs 2018-19 (issued November 2018), 2019-04 (issued April 2019), 2019-05 (issued May 2019), 2019-11 (issued November 2019), 2020-02 (issued February 2020) and 2020-03 (issued March 2020). Topic 326 modifies the measurement and recognition of credit losses for most financial assets and certain other instruments, requiring the use of forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which may result in earlier recognition of credit losses under the new standard. It also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The standard requires a modified retrospective approach with a cumulative effect adjustment to retained earnings. ASU 2016-13 is effective for the Company’s annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company has not yet evaluated the potential impact of this pronouncement.

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Notes to Unaudited 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 financial statements.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued. The Company has evaluated events and transactions subsequent to September 30, 2021 for potential recognition of disclosure in the financial statements.

2. Business Combination

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 amounts of $0 and $278,140 are included in professional and legal fees the Company’s statement of operations for the three and nine months ended September 30, 2021, respectively. 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
Far 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		243,166
Inventory		726,006
Property, Plant, & Equipment		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 have continued with Picky Bars’ previous management and workforce at the Oregon facilities. 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.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

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 $1,329,882 and $2,314,315 to the Company’s continuing operations for the three and nine months ended September 30, 2021, respectively. Picky Bar operations contributed net income of $95,472 and $30,495 to the Company’s continuing operations for the three and nine months ended September 30, 2021, respectively.

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:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net Sales	$	10,865,914		$	8,541,642		$	29,191,720		$	21,481,374
Net Loss	$	(5,351,698	)	$	(4,191,245	)	$	(16,712,048	)	$	(10,389,402	)

This unaudited pro forma financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisition had occurred on January 1 of the year prior to the acquisition. Moreover, this information is not indicative of what the Company’s future operating results will be. The information prior to the acquisition is included based on prior accounting records maintained by Picky Bars. The pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Picky Bars to reflect the accrual of payroll related costs and depreciation. The unaudited pro forma financial information includes non-recurring adjustments to remove transaction costs directly attributable to the acquisition.

4. Investment securities

Investment securities as of September 30, 2021 and December 31, 2020 consisted of the following:


			Gross unrealized		Gross unrealized			Estimated fair
	Amortized cost		gains		losses			value
September 30, 2021
Federal agency bonds – mortgage-backed	$	8,696,093	$	—	$	(7,842	)	$	8,688,251
Total investment securities available-for-sale	$	8,696,093	$	—	$	(7,842	)	$	8,688,251
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

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

The amortized cost and estimated fair value of investment securities as of September 30, 2021 and December 31, 2020, by contractual maturity, are shown below:


	Available-for-sale
	Amortized cost		Estimated fair value
September 30, 2021
Due after one year through five years	$	8,696,093	$	8,688,251
Total investment securities available-for-sale	$	8,696,093	$	8,688,251


	Available-for-sale
	Amortized cost		Estimated fair value
December 31, 2020
Due after one year through five years	$	8,692,637	$	8,706,844
Total investment securities available-for-sale	$	8,692,637	$	8,706,844

Investment securities with an estimated fair value of $8,688,251 and $8,706,844 as of September 30, 2021 and December 31, 2020, respectively, were pledged to secure our revolving line of credit. See Note 6 for additional information.

The Company recorded no sales or maturities of available-for-sale securities during the three and nine months ended September 30, 2021. The Company had two investments mature totaling $4,475,000 during the three and nine months ended September 30, 2020. The Company also recorded two sales and recognized a gain of $6,250, and $13,927 during the three and nine months ended September 30, 2020, respectively.

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 September 30, 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.

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. The Company determined that a triggering event has not occurred which would require an interim impairment test to be performed.

Intangible Assets, Net

Intangible Assets, net is comprised of the following:


	September 30,			December 31,
	2021			2020
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)		173,353			31,807
Amortizable intangible assets		5,103,353			31,807
Accumulated amortization		(270,393	)		(26,815	)
Amortizable intangible assets, net		4,832,960			4,992
Licensing agreements (indefinite)		132,100			132,100
Total Intangible assets, net	$	4,965,060		$	137,092

The weighted-average useful life of all the Company’s intangible assets is 9.3 years.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

For the three and nine months ended September 30, 2021, amortization expense was $139,775 and $243,578, respectively. For the three and nine months ended September 30, 2020, amortization expense was $2,552 and $7,599, 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:


2021	$	140,441
2022		560,205
2023		558,968
2024		503,697
2025		485,120
Thereafter		2,584,529
	$	4,832,960

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). This lease expires on December 31, 2021.

On September 2, 2021, the Company entered into a revolving line of credit with Wells Fargo Bank National Association ("Wells Fargo") 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 SOFR plus 1.5% per annum until paid in full. As of September 30, 2021, the commitment was active but draws on the line were restricted as no assets has been transferred as collateral. The Company could have drawn on the line had assets been transferred.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

The following table sets forth the amounts of our significant contractual obligations and commitments with definitive payment terms as of September 30, 2021:


Payments Due by Period	Operating Leases (1)		Note Payable		Total
2021	$	59,711	$	51,000	$	110,711
2022		243,236		—		243,236
2023		250,534		—		250,534
2024		258,049		—		258,049
2025		265,791		—		265,791
Thereafter		860,498		—		860,498
	$	1,937,820	$	51,000	$	1,988,820

(1)

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

Rent expense is allocated to general and administrative expenses and cost of goods sold upon the sale of inventory. Rent expense was $285,096 and $816,051 for the three and nine months ended September 30, 2021, respectively. Rent expense was $213,532 and $589,196 for the three and nine months ended September 30, 2020, respectively.

11. Deferred Tax Assets and Liabilities

The Company had a tax net loss for the three and nine months ended September 30, 2021 and 2020, and therefore expects no assessment of income taxes for such periods. Additionally, the net deferred tax assets are fully allowed for as of September 30, 2021 and December 31, 2020. Due to the full valuation allowance during 2020 and as of September 30, 2021 there was no provision for, or benefit from, income taxes reported for the three and nine months ended September 30, 2021 and 2020. The Company’s deferred tax assets and liabilities consisted of the following as of September 30, 2021 and December 31, 2020:


	September 30,			December 31,
	2021			2020
Noncurrent deferred tax assets:
Net operating loss carryforwards	$	12,472,767		$	7,444,857
Property and equipment		594,910			671,562
Research and development credits		135,783			106,526
Accrued expenses		70,024			75,702
Charitable contributions		37,284			—
Unexercised options		47,681			—
Total noncurrent deferred tax assets		13,358,449			8,298,647
Noncurrent deferred tax liabilities:
Deferred rent asset	$	662,495		$	735,537
Intangible assets		86,495			—
Total noncurrent deferred tax liabilities		748,990			735,537
Net noncurrent deferred tax assets	$	12,609,459		$	7,563,110
Valuation allowance		(12,695,954	)		(7,563,110	)
Total net noncurrent deferred tax liabilities	$	(86,495	)	$	—

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 nine months ended September 30, 2021, the Company recorded a deferred tax liability of $86,495 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.” The 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. As such, this deferred tax liability cannot be used to reduce the valuation allowance for U.S. federal income tax purposes.

Apart from the $86,495 deferred tax expense mentioned above, as of September 30, 2021, the Company did not provide a current or deferred U.S. federal or state income tax provision or benefit for any of the periods presented because the Company has reported cumulative losses since inception. Management has determined that it was not more likely than not that the deferred tax assets would be realized, thus a full valuation allowance was recorded. The Company may reduce the valuation allowance against deferred tax assets at such time when it becomes more likely than not that the deferred tax assets will be realized.

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

The change in the valuation allowance for deferred tax assets and liabilities for the three and nine months ended September 30, 2021 was a net increase of $1,457,012 and $5,132,844, respectively. At September 30, 2021 and December 31, 2020, the Company had U.S. federal net operating losses (“NOLs”) totaling approximately $43,350,868 and $27,528,486, respectively. The Company had federal NOLs at September 30, 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 September 30, 2021 and December 31, 2020, the Company had federal NOLs totaling approximately $41,482,791 and $25,660,409, respectively from 2018 and future years that can be carried forward indefinitely.

GAAP requires management to evaluate and report information regarding its exposure to various tax positions taken by the Company. The Company has determined whether there are any tax positions that have met the recognition threshold and has measured the Company’s exposure to those tax positions. Management believes that the Company has adequately addressed all relevant tax positions and that there are no unrecorded tax liabilities.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. U.S. and state jurisdictions have statutes of limitations that generally range from 3 to 5 years.

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 tables summarize the Company’s stock option activity during the nine months ended September 30, 2021 and 2020:


	September 30, 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			41.03
Exercised/released		(61,119	)		8.21
Cancelled/forfeited		(82,833	)		15.79
Balance at September 30, 2021		800,229		$	11.41		6.83	$	6,135,017
Exercisable at September 30, 2021		580,601		$	7.92		6.27	$	11,077,867

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LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements


	September 30, 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		164,078			14.12
Exercised/released		(11,314	)		10.59
Cancelled/forfeited		(45,532	)		11.37
Balance at September 30, 2020		895,760		$	8.94		6.99	$	34,313,763
Exercisable at September 30, 2020		508,382		$	6.82		5.44	$	19,851,163

The stock-based compensation expense is recognized ratably over the requisite service period for all awards. As a result of applying the provisions of ASC 718, “Compensation- Stock Compensation” (“ASC 718”), the Company recognized stock compensation expense of $1,042,440 and $3,142,517 for the three and nine months ended September 30, 2021, respectively. The Company recognized stock compensation expense of $833,199 and $1,235,293 for the three and nine months ended September 30, 2020, respectively.

During the three and nine months ended September 30, 2021, the Company granted 1,658 and 56,541 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 $191,889 and $654,929, respectively. The Company recorded stock-based compensation of $337,822 and $677,485, in the three and nine months ended September 30, 2020, respectively. As of September 30, 2021 and December 31, 2020, there was $1,647,860 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 2.21 years.

During the three and nine months ended September 30, 2021, there were $1 and $219,157, respectively, of payroll taxes withheld from stock-based compensation which were remitted directly to the tax authorities on the behalf of the recipients of the awards. 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 three and nine months ended September 30, 2020.

During the three and nine months ended September 30, 2021, the Company granted 42,662 and 88,407 restricted stock units, respectively, to 147 employees. As a result of applying the provisions of ASC 718 to these issuances, the Company recorded stock-based compensation expense of $438,542 and $1,166,871 in the three and nine months ended September 30, 2021, respectively. As of September 30, 2021 and December 31, 2020, there was $2,672,840 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 2.22 years.

During the three and nine months ended September 30, 2021, the Company granted 0 and 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 $399,490 and $1,293,055 for the three and nine months ended September 30, 2021, respectively. These MSUs vest upon the 30-day weighted average stock price reaching or exceeding established targets, after reaching certain time targets. As of September 30, 2021 and December 31, 2020, there was $2,391,226 and $0, respectively, of total unrecognized compensation cost related to non-vested MSUs with a remaining weighted-average vesting period of 2.34 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. We estimate that 5,079 shares of common stock will be issued in accordance with the plan to those enrollees in the May 1, 2021 enrollment period. As a result of applying the provisions of ASC 718 to these issuances, the Company recorded stock-based compensation expense of $12,519 and $27,662 for the three and nine months ended September 30, 2021, respectively.

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Notes to Unaudited Financial Statements

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 three and nine months ended September 30, 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 the United States Treasury yield curve in effect at the time of grant for a period that is commensurate with the assumed expected term.



Dividend Yield. The dividend yield is 0% because the Company has never paid, and for the foreseeable future does not expect to pay, dividends on its shares of common stock.



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

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 nine months ended September 30, 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 Nine Months Ended September 30,
	2021			2020
Weighted-average expected volatility		52.12	%		70.18	%
Weighted-average expected term (years)		6.23			6.23
Weighted-average expected risk-free interest rate		0.72	%		0.70	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of options granted	$	20.78		$	17.22

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 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-1convertible preferred stock converting into 766,284 aggregate shares of common stock.

As of September 30, 2021 and December 31, 2020, the Company is authorized to issue 5,000,000 shares of preferred stock, par value $0.001 per share, and there were no shares of preferred stock issued or outstanding.

Series A-1 and A-2 Preferred Stock

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

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

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

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

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Notes to Unaudited Financial Statements

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 warrant 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 warrant on April 13, 2020 to be approximately $899,617. The fair value of the warrant 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 warrant 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 warrant null.

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. Basic earnings per share is reconciled to diluted earnings per share in the following table:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net loss	$	(5,351,698	)	$	(3,355,084	)	$	(16,984,461	)	$	(8,356,704	)
Less deemed dividend of beneficial conversion feature		—			—			—			(825,366	)
Less deemed dividend on warrant discount		—			(645,939	)		—			(825,366	)
Net loss attributable to Laird Superfood, Inc. common stockholders	$	(5,351,698	)	$	(4,001,023	)	$	(16,984,461	)	$	(10,007,436	)
Weighted average shares outstanding- basic		9,001,912			4,672,041			8,954,875			4,427,114
Dilutive securities		—			—			—			—
Weighted average shares outstanding- diluted		9,001,912			4,672,041			8,954,875			4,427,114
Common stock options and restricted stock awards excluded due to anti-dilutive effect		907,085			883,260			907,085			883,260
Basic and diluted:
Net loss per share (basic)	$	(0.59	)	$	(0.86	)	$	(1.90	)	$	(2.26	)
Net loss per share (diluted)	$	(0.59	)	$	(0.86	)	$	(1.90	)	$	(2.26	)

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:


	Three Months Ended September 30,
	2021						2020
	$			% of Total			$			% of Total
Coffee creamers	$	6,489,895			60	%	$	5,261,175			70	%
Hydration and beverage enhancing supplements		1,330,906			12	%		1,037,517			14	%
Coffee, tea, and hot chocolate products		1,724,919			16	%		2,153,702			29	%
Harvest snacks and other food items		1,866,709			17	%		—			0	%
Other		452,002			4	%		159,906			2	%
Gross sales		11,864,431			109	%		8,612,300			115	%
Shipping income		195,085			2	%		25,737			0	%
Returns and discounts		(1,193,602	)		(11	%)		(1,147,395	)		(15	%)
Sales, net	$	10,865,914			100	%	$	7,490,642			100	%

	Nine Months Ended September 30,
	2021						2020
	$			% of Total			$			% of Total
Coffee creamers	$	16,590,542			60	%	$	13,285,967			72	%
Hydration and beverage enhancing supplements		3,907,111			14	%		2,877,694			16	%
Coffee, tea, and hot chocolate products		5,286,882			19	%		4,116,891			22	%
Harvest snacks and other food items		3,353,178			12	%		—			0	%
Other		987,076			4	%		378,318			2	%
Gross sales		30,124,789			110	%		20,658,870			112	%
Shipping income		261,495			1	%		221,082			1	%
Returns and discounts		(2,942,890	)		(11	%)		(2,381,455	)		(13	%)
Sales, net	$	27,443,394			100	%	$	18,498,497			100	%

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


	Three Months Ended September 30,
	2021					2020
	$		% of Total			$		% of Total
Online	$	6,331,003		58	%	$	3,713,773		50	%
Wholesale		4,415,867		41	%		3,650,854		49	%
Food service		119,044		1	%		126,015		1	%
Sales, net	$	10,865,914		100	%	$	7,490,642		100	%

	Nine Months Ended September 30,
	2021					2020
	$		% of Total			$		% of Total
Online	$	16,492,513		60	%	$	10,049,039		54	%
Wholesale		10,529,593		38	%		8,117,655		44	%
Food service		421,288		2	%		331,803		2	%
Sales, net	$	27,443,394		100	%	$	18,498,497		100	%

Table of Contents

LAIRD SUPERFOOD, INC.

Notes to Unaudited Financial Statements

Contract assets (deferred costs of goods sold associated with deferred revenue), contract liabilities (deferred revenue, customer deposits, rewards programs), and refund liabilities (accrued returns) have been estimated and recorded as of September 30, 2021. Contract assets included in finished goods inventories were $1,410 and $0 as of September 30, 2021 and December 31, 2020, respectively. Contract liabilities and refund liabilities included in accrued expenses were $224,858 and $33,239 as of September 30, 2021, respectively. Contract liabilities and refund liabilities included in accrued expenses were $132,280 and $28,968 as of December 31, 2020, respectively. Receivables from contracts with customers are included in Accounts receivable, net on the Company’s balance sheets. As of September 30, 2021 and December 31, 2020, Accounts receivable, net included, $956,870 and $839,659, respectively, of receivables from contracts with customers.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q and the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 $10.9 million for the three months ended September 30, 2021, from $7.5 million for the three months ended September 30, 2020, representing net sales growth of 45%. Likewise, net sales increased to $27.4 million for the nine months ended September 30, 2021, from $18.5 million for the nine months ended September 30, 2020, representing net sales growth of 48%. The growth in the three and nine months ended September 30, 2021 was primarily driven by a significant expansion of our customer base in online channels as well as expansion in our product offerings.

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

Our online business is two pronged and consists of lairdsuperfood.com and Amazon.com. For the three months ended September 30, 2021 and 2020, the online business made up 58% and 50% of our net sales, respectively. For the nine months ended September 30, 2021 and 2020, the online business made up 60% and 54% 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. We view our growing proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our website allows Laird Superfood to educate consumers on the benefits of our products and ingredients, while providing a positive customer experience. We believe this experience leads to higher retention rates among repeat users and subscribers, as evidenced by repeat users and subscribers accounting for over two-thirds of lairdsuperfood.com sales for three and nine months ended September 30, 2021.

Our wholesale business addresses the $759 billion grocery industry, specifically the $174 billion Natural, Organic and Functional Foods and Beverages sub-segment, which has been increasing its proportion of the grocery industry, as well as many non-grocery retail channels. For the three months ended September 30, 2021 and 2020, wholesale revenue comprised 41% and 49% of our net sales, respectively. For the nine months ended September 30, 2021 and 2020, wholesale revenue comprised 38% and 44% of our net sales, respectively. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. The diversity of our retail channel represents a strong competitive advantage for Laird Superfood and provides us with a larger total addressable market than would be considered normal for a food brand that is singularly focused on the grocery market.

On December 3, 2020, the Company entered into an agreement with DMV for an additional capital contribution as a participant in the DMV COVID-19 Relief Fund. The agreement provided the Company with cash consideration of $298,103 for the purpose of supporting three relief projects: (1) continual sanitation rotation, (2) spend on increased labor, material and maintenance costs in the face of adversity, and (3) new/existing hospitals relief initiative. The Company has included the balance in cash and cash equivalents on the Balance Sheet as of September 30, 2021. See Note 1 for more information.

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

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

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.

On August 5, 2021, Paul Hodge, Jr. informed the Company’s Board of Directors that he intends to transition to a non-executive role and step down as President and Chief Executive Officer upon identifying an appropriate successor. The Board of Directors has commenced a search for his replacement. Mr. Hodge intends to remain a director of the Company.

On September 2, 2021, the Company entered into a revolving line of credit with Wells Fargo Bank National Association ("Wells Fargo") 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 plus 1.5% per annum until paid in full. As of September 30, 2021, the commitment was active but draws on the line were restricted as no assets has been transferred as collateral. The Company could have drawn on the line had assets been transferred.

We believe that our future performance will depend on many factors, including the following:

Ability to Grow Our Customer Base in both Online and Traditional Wholesale Distribution Channels

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

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.

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.

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.

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.

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.

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.

We sell our products indirectly to consumers through a broad set of physical wholesale channels. We also derive revenue from the sale of our products directly to consumers through our direct website, as well as third-party online channels.

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.

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

We 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.

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.

Comparison of the three months ended September 30, 2021 (“Q3 2021”) and September 30, 2020 (“Q3 2020”)

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

Net sales increased to $10.9 million in Q3 2021 from $7.5 million in Q3 2020. 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 Q3 2020 including Activate Daily Greens, Activate Immune Support, Aloha Plant Milk, Baking Mixes, Functional Coffees, Guava Orange Hydrate, OatMac Superfood Creamers, Pili Nuts, Renew Protein, Renew Rest & Recover, and Picky Bars products accounted for $3.5 million of gross sales in Q3 2021. The increase in sales is offset by a $0.6 million decrease in sales of mushroom coffee due to the timing of club store test placements for functional coffees in Q3 2020.

Cost of goods sold increased to $7.7 million in Q3 2021 from $5.7 million in Q3 2020, primarily due to sales growth in the 2021 period, elevated inbound and outbound shipping costs, increased personnel costs, and increased co-packing costs primarily associated with our liquid creamer product line.

Gross profit increased to $3.2 million in Q3 2021 from $1.8 million in Q3 2020, primarily due to sales growth in the 2021 period. Gross margins increased to 29.4% in Q3 2021 from 23.4% in Q3 2020, primarily due to optimization of direct to consumer shipping costs, improvements in liquid creamer distribution and disposals, and operational efficiency improvements.

General and administrative expense increased to $4.3 million in Q3 2021 from $2.2 million in Q3 2020, primarily due to stock-based compensation, personnel costs, insurance expense, professional fees, and amortization of intangible assets.

Research and product development expense increased to $0.2 million in Q3 2021 from $0.1 million in Q3 2020, primarily due to costs incurred to bring new products to market.

Sales and marketing expense increased to $4.0 million in Q3 2021 from $2.8 million in Q3 2020, primarily due to advertising expense and marketing fees.

Other income is composed of interest income and dividend income related to investment securities available-for-sale as well as other non-operating costs. Other income decreased to $11 thousand of income in Q3 2021 from $27 thousand of income in Q3 2020, primarily due to declining interest rates as well as realized gains on the sale of available for sale securities in Q3 2020.

Comparison of the nine months ended September 30, 2021 (“YTD 2021”) and September 30, 2020 (“YTD 2020”)

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

Net sales increased to $27.4 million in YTD 2021 from $18.5 million in YTD 2020. 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 YTD 2020, including Activate Daily Greens, Activate Immune Support, Aloha Plant Milk, Baking Mixes, Functional Coffees, Guava Orange Hydrate, OatMac Superfood Creamers, Pili Nuts, Renew Protein, Renew Rest & Recover, and Picky Bars products, accounted for $6.1 million of gross sales in YTD 2021.

Cost of goods sold increased to $20.2 million in YTD 2021 from $13.4 million in YTD 2020, primarily due to sales growth in the 2021 period, elevated inbound and outbound shipping costs, increased personnel costs, and increased co-packing costs primarily associated with our liquid creamer product line.

Gross profit increased to $7.2 million in YTD 2021 from $5.1 million in YTD 2020. Gross margins decreased to 26.3% in YTD 2021 from 27.6% in YTD 2020 primarily due to the full period impact from the launch of a free shipping initiative for direct online purchases made on lairdsuperfood.com combined with increased co packing and distribution expenses associated with our liquid creamer product line, partially offset by optimization of direct to consumer shipping costs.

General and administrative expense increased to $12.1 million in YTD 2021 from $5.7 million in YTD 2020, primarily due to stock-based compensation, personnel costs, insurance expense, professional fees, reserve against prepaid assets, and amortization of intangible assets.

Research and product development expense increased to $0.9 million in YTD 2021 from $0.4 million in YTD 2020, primarily due to costs incurred to bring new products to market.

Sales and marketing expense increased to $11.2 million in YTD 2021 from $7.5 million in YTD 2020, primarily due to advertising expense and marketing fees.

Other income is composed of interest income and dividend income related to investment securities available-for-sale as well as other non-operating costs. Other income decreased to $36 thousand of income in YTD 2021 from $65 thousand of income in YTD 2020, primarily the result of declining interest rates in YTD 2021, as well as realized gains on the sale of available for sale securities in YTD 2020.

As of September 30, 2021, we had incurred accumulated net losses of $48.9 million, including operating losses of $5.3 million and $3.4 million for Q3 2021 and Q3 2020, respectively, and $16.9 million and $8.4 million for YTD 2021 and YTD 2020, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, and we expect to incur additional expenses associated with being a public company. We have historically financed our operations and capital expenditures through private placements of our preferred stock and common stock, our initial public offering ("IPO"), as well as lines of credit and term loans.

Our historical uses of cash have primarily consisted of cash used in operating activities to fund our operating losses and working capital needs.

As of September 30, 2021, we had $39.7 million of cash-on-hand and investments and $15.1 million of available borrowings under our lines of credit. As of December 31, 2020, we had $65.9 million of cash-on-hand and investments and $11.1 million of available borrowings under our lines of credit. As of September 30, 2021, and December 31, 2020, we had $51 thousand outstanding under our forgivable loans with the City of Sisters, Oregon and no amounts were outstanding under our lines of credit.

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

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

Cash used in operating activities was $14.2 million for YTD 2021 as compared to $7.1 million for YTD 2020, both of which are primarily the result of the operating losses for the periods as well as increasing inventory levels.

Cash used in investing activities was $12.1 million for YTD 2021 as compared to cash provided of $4.1 million for YTD 2020. The change is primarily due to the acquisition of Picky Bars in YTD 2021 and proceeds from maturities of available-for-sale investments in YTD 2020.

Cash provided by financing activities was $0.2 million for YTD 2021 compared to cash provided of $74.9 million for YTD 2020. Cash provided for YTD 2021 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 YTD 2020 primarily related to the initial public offering.

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

We recognize revenue in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), which we adopted January 1, 2019. Under ASC 606, we recognize revenue in accordance with a five-step model in which we evaluate the transfer of promised goods or services and recognize revenue when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. We have elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Revenue is reported net of applicable provisions for discounts, returns and allowances. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. We will record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.

The compensation cost relating to share-based payment transactions is recognized in the financial statements. The cost is measured based on the grant date fair value of the equity or liability instruments issued. Compensation cost for all employee stock awards is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for all consultant stock awards is calculated and recognized over the consultant’s service period based on the grant date fair value of the equity or liability instruments issued. Upon exercise of stock awards, recipients are issued shares of common stock.

Income taxes provide for the tax effects of transactions reported in the financial statements and consist of income taxes currently due and deferred tax assets and liabilities. We may also be subject to interest and penalties from taxing authorities on underpayment of income taxes. In such an event, interest and penalties are included in income tax expense. Deferred tax assets and liabilities are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes) and net operating losses. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Due to the historical net loss position of the Company, we recorded a full deferred tax valuation allowance as of September 30, 2021 and December 31, 2020.

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

See Recently Issued Accounting Pronouncements in Note 1 to our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

We may take advantage of these provisions until the end of the fiscal year in which the fifth anniversary of our IPO occurs, or such earlier time when we no longer qualify as an emerging growth company. We would cease to be an emerging growth company on the earlier of (1) the last day of the fiscal year (a) in which we have more than $1.07 billion in annual revenue or (b) in which we have more than $700 million in market value of our capital stock held by non-affiliates, or (2) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all these reduced burdens.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.

As a smaller reporting company, we are not required to provide this information in our Quarterly Reports.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

We acquired Picky Bars on May 3, 2021. We have extended oversight and monitoring processes that support internal control over financial reporting to include the acquired operations. Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021.

There were no changes in our internal control over financial reporting during the quarter ended of September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

On May 3, 2021, we completed the acquisition of Picky Bars, LLC. As previously disclosed in the Current Report on Form 8-K filed May 4, 2021, as part of the consideration for the acquisition, the Company issued 53,133 shares of common stock to former Picky Bars’ equity holders in an unregistered transaction pursuant to an exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended. See Note 2 to the unaudited financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information related to the Picky Bars acquisition.

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

** The certifications attached as Exhibit 32.1 and 32.2 are not deemed filed with the SEC and are not incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form10-Q,irrespective of any general incorporation language contained in such.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Page
Part I. Financial Information

Item 1. Financial Statements		4

Balance Sheets		4

Statements of Operations		5

Statements of Comprehensive Loss		6

Statements of Convertible Preferred Stock and Stockholders’ Equity		7

Statements of Cash Flows		9

Notes to Financial Statements		10

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations		32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		40

Item 4. Controls and Procedures		40

Part II. Other Information		41

Item 1. Legal Proceedings		41

Item 1A. Risk Factors		41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41

Item 6. Exhibits		42

Signatures		43


	As of
	September 30, 2021			December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	31,057,538		$	57,208,080
Accounts receivable, net		956,870			839,659
Investment securities available-for-sale		8,688,251			8,706,844
Inventory		10,335,990			6,295,898
Prepaid expenses and other current assets, net		1,767,744			2,847,319
Deposits		563,580			97,674
Total current assets		53,369,973			75,995,474
Noncurrent assets
Property and equipment, net		4,139,199			3,513,488
Intangible assets, net		4,965,060			137,092
Goodwill		6,486,000			—
Deferred rent		2,428,859			2,696,646
Total noncurrent assets		18,019,118			6,347,226
Total assets	$	71,389,091		$	82,342,700
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	1,548,009		$	1,315,964
Payroll liabilities		813,798			722,915
Accrued expenses		1,185,900			704,543
Total current liabilities		3,547,707			2,743,422
Long-term liabilities
Deferred tax liability, net		86,495			—
Note payable		51,000			51,000
Total long-term liabilities		137,495			51,000
Total liabilities		3,685,202			2,794,422
Stockholders’ equity
Common stock, $0.001 par value, 100,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 9,402,959 and 9,037,499 issued and outstanding at September 30, 2021, respectively; 9,247,758 and 8,892,886 issued and outstanding at December 31, 2020, respectively	$	9,037		$	8,893
Additional paid-in capital		116,614,323			111,452,346
Accumulated other comprehensive income (loss)		(7,842	)		14,207
Accumulated deficit		(48,911,629	)		(31,927,168	)
Total stockholders’ equity		67,703,889			79,548,278
Total liabilities and stockholders’ equity	$	71,389,091		$	82,342,700


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020
Sales, net	$	10,865,914		$	7,490,642		$	27,443,394		$	18,498,497
Cost of goods sold		(7,667,075	)		(5,734,144	)		(20,225,269	)		(13,384,880	)
Gross profit		3,198,839			1,756,498			7,218,125			5,113,617
General and administrative
Salaries, wages and benefits		1,252,664			1,031,425			3,478,362			2,652,500
Stock-based compensation		911,467			290,148			2,766,071			589,600
Professional fees		551,368			274,244			1,504,438			647,422
Insurance expense		537,174			89,136			1,560,395			146,197
Office expense		235,109			142,269			628,388			364,518
Occupancy		68,251			57,378			187,729			167,151
Merchant service fees		171,050			103,306			429,307			248,355
Netsuite subscription expense		64,886			33,173			194,024			90,491
Impairment on property, plant, and equipment		8,317			—			8,317			239,734
Other expense		453,838			197,740			1,303,398			504,864
Total general and administrative expenses		4,254,124			2,218,819			12,060,429			5,650,832
Research and product development
Salaries, wages and benefits		118,105			54,454			304,653			202,287
Stock-based compensation		7,864			2,310			16,816			6,694
Product development expense		107,418			43,589			520,210			141,506
Other expense		9,217			2,526			16,464			13,503
Total research and product development expenses		242,604			102,879			858,143			363,990
Sales and marketing
Salaries, wages and benefits		589,941			613,961			1,854,020			2,057,517
Stock-based compensation		65,441			520,022			162,536			630,456
Advertising		1,954,377			1,140,369			5,313,881			3,146,592
General marketing		1,131,023			312,402			3,079,181			883,286
Amazon selling fee		196,053			179,425			609,171			575,313
Travel expense		11,828			4,908			32,188			78,872
Other expense		66,090			45,543			182,788			148,911
Total sales and marketing expenses		4,014,753			2,816,630			11,233,765			7,520,947
Total expenses		8,511,481			5,138,328			24,152,337			13,535,769
Operating loss		(5,312,642	)		(3,381,830	)		(16,934,212	)		(8,422,152	)
Other income
Interest and dividend income		10,721			20,496			36,246			51,521
Gain on sale of available-for-sale securities		—			6,250			—			13,927
Total other income		10,721			26,746			36,246			65,448
Loss before income taxes		(5,301,921	)		(3,355,084	)		(16,897,966	)		(8,356,704	)
Income tax expense		(49,777	)		—			(86,495	)		—
Net loss	$	(5,351,698	)	$	(3,355,084	)	$	(16,984,461	)	$	(8,356,704	)
Less deemed dividend of beneficial conversion feature		—			—			—			(825,366	)
Less deemed dividend on warrant discount		—			(645,939	)		—			(825,366	)
Net loss attributable to Laird Superfood, Inc. common stockholders	$	(5,351,698	)	$	(4,001,023	)	$	(16,984,461	)	$	(10,007,436	)
Net loss per share attributable to Laird Superfood, Inc. common stockholders:
Basic	$	(0.59	)	$	(0.86	)	$	(1.90	)	$	(2.26	)
Diluted	$	(0.59	)	$	(0.86	)	$	(1.90	)	$	(2.26	)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted		9,001,912			4,672,041			8,954,875			4,427,114


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020
Net loss	$	(5,351,698	)	$	(4,001,023	)	$	(16,984,461	)	$	(10,007,436	)
Other comprehensive income (loss), net of tax Change in unrealized gains (losses) on investment securities available-for-sale, net of tax(1)		1,952			(16,421	)		(22,049	)		924
Total other comprehensive income (loss)		1,952			(16,421	)		(22,049	)		924
Comprehensive loss	$	(5,349,746	)	$	(4,017,444	)	$	(17,006,510	)	$	(10,006,512	)


	For the Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities
Net loss	$	(16,984,461	)	$	(8,356,704	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation		454,400			344,162
Amortization		243,578			7,599
Loss on disposal of equipment		5,600			—
Stock-based compensation		3,142,517			1,320,433
Reserve for prepaid assets		179,000			—
Restricted stock awards		—			62,431
Impairment on property, plant, and equipment		8,317			239,734
Gain on sale of investment securities available-for-sale		—			13,927
Changes in operating assets and liabilities:
Accounts receivable		(72,150	)		(397,669	)
Inventory		(3,314,086	)		(1,441,766	)
Prepaid expenses and other current assets		1,137,741			(1,582,315	)
Deferred rent		267,787			270,731
Deposits		2,601			33,009
Accounts payable		184,722			1,613,754
Payroll liabilities		81,694			207,675
Accrued expenses		333,246			567,103
Deferred taxes		86,495			—
Net cash from operating activities		(14,242,999	)		(7,097,896	)
Cash flows from investing activities
Purchase of property, plant, and equipment		(1,039,350	)		(874,764	)
Proceeds from sale of property, equipment, and software		700			—
Deposits on equipment to be acquired		(462,507	)		—
Purchase of software		(141,546	)		—
Acquisition of a business, net of cash acquired (note 2)		(10,449,587	)		—
Sale of investment securities available-for-sale		—			516,459
Proceeds from maturities of investment securities available-for-sale		—			4,475,000
Net cash from investing activities		(12,092,290	)		4,116,695
Cash flows from financing activities
Issuance of common stock		—			66,104,477
Issuance of preferred stock		—			10,000,006
Common stock issuance costs		(82,043	)		(1,131,291	)
Preferred stock issuance costs		—			(147,721	)
Withholding tax payments for share based compensation		(219,157	)		—
Restricted stock units issued		31			—
Repurchased common stock		—			(20,532	)
Stock options exercised		485,916			119,838
Net cash from financing activities		184,747			74,924,777
Net change in cash and cash equivalents		(26,150,542	)		71,943,576
Cash and cash equivalents beginning of period		57,208,080			1,004,109
Cash and cash equivalents end of period	$	31,057,538		$	72,947,685
Supplemental disclosures of non-cash information
Unrealized gain (loss) on available-for-sale securities	$	(22,049	)	$	924

Purchases of equipment included in deposits at the beginning of the period	$	—		$	14,699


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


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


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


	Convertible Preferred Stock				Stockholders’ Equity
	Preferred Stock				Common Stock						Additional			Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Shares			Amount			Paid-in Capital			Income (Loss)			Deficit			Total
Balances, January 1, 2021		—	$	—		8,892,886		$	8,893		$	111,452,346		$	14,207		$	(31,927,168	)	$	79,548,278
Stock-based compensation		—		—		—			—			1,010,003			—			—			1,010,003
Less: Withholding tax payments for share-based compensation		—		—		—			—			(188,793	)		—			—			(188,793	)
Stock option exercises		—		—		28,148			28			151,618			—			—			151,646
Common stock issuance costs		—		—		—			—			(82,043	)		—			—			(82,043	)
Other comprehensive income, net of tax		—		—		—			—			—			(20,290	)		—			(20,290	)
Net loss		—		—		—			—			—			—			(5,330,504	)		(5,330,504	)
Balances, March 31, 2021		—	$	-		8,921,034		$	8,921		$	112,343,131		$	(6,083	)	$	(37,257,672	)	$	75,088,297
Stock-based compensation		—		—		—			—			1,090,074			—			—			1,090,074
Less: Withholding tax payments for share-based compensation		—		—		(956	)		(1	)		(30,362	)		—			—			(30,363	)
Restricted stock units issued		—		—		3,000			3			—			—			—			3
Stock option exercises		—		—		23,169			23			242,997			—			—			243,020
Common stock issued for business acquisition costs		—		—		53,134			53			1,834,804			—			—			1,834,857
Other comprehensive income, net of tax		—		—		—			—			—			(3,711	)		—			(3,711	)
Net loss		—		—		—			—			—			—			(6,302,259	)		(6,302,259	)
Balances, June 30, 2021		—	$	-		8,999,381		$	8,999		$	115,480,644		$	(9,794	)	$	(43,559,931	)	$	71,919,918
Stock-based compensation		—		—		—			—			1,042,440			—			—			1,042,440
Less: Withholding tax payments for share-based compensation		—		—		(962	)		(1	)		—			—			—			(1	)
Restricted stock units issued		—		—		28,513			28			—			—			—			28
Stock option exercises		—		—		10,517			11			91,239			—			—			91,250
Other comprehensive income, net of tax		—		—		—			—			—			1,952			—			1,952
Net loss		—		—		—			—			—			—			(5,351,698	)		(5,351,698	)
Balances, September 30, 2021		—	$	-		9,037,449		$	9,037		$	116,614,323		$	(7,842	)	$	(48,911,629	)	$	67,703,889


Fair Value as of September 30, 2021	Level 1		Level 2		Level 3
Federal agency bonds—mortgage-backed	$	—	$	8,688,251	$	—


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


	For the Three Months Ended
	September 30,						Change
	2021			2020			$			%
Sales, net	$	10,865,914		$	7,490,642		$	3,375,272			45	%
Cost of goods sold		(7,667,075	)		(5,734,144	)		(1,932,931	)		34	%
Gross profit		3,198,839			1,756,498			1,442,341			82	%
Gross Margin		29.4	%		23.4	%
General and administrative		4,254,124			2,218,819			2,035,305			92	%
Research and product development		242,604			102,879			139,725			136	%
Sales and marketing		4,014,753			2,816,630			1,198,123			43	%
Total expenses		8,511,481			5,138,328			3,373,153			66	%
Operating loss		(5,312,642	)		(3,381,830	)		(1,930,812	)		57	%
Other income		10,721			26,746			(16,025	)		(60	%)
Loss before income taxes		(5,301,921	)		(3,355,084	)		(1,946,837	)		58	%
Income tax expense		(49,777	)		—			(49,777	)		0	%
Net loss	$	(5,351,698	)	$	(3,355,084	)	$	(1,996,614	)		60	%


	Laird Superfood, Inc.
	(Registrant)

Date: November 10, 2021	/s/ Paul W. Hodge, Jr.
	Paul W. Hodge, Jr.
	President and Chief Executive Officer

Date: November 10, 2021	/s/ Valerie Ells
	Valerie Ells
	Chief Financial Officer