# Laird Superfood, Inc.: Form 10-Q for the period ended Mar 31, 2022

- Company: [Laird Superfood, Inc.](/companies/lsf.md) (CIK 1650696)
- Form: 10-Q
- Filed: 2022-05-12
- Accepted by EDGAR: May 12, 2022, 20:36 ET
- Period: 2022-03-31
- Accession: 0000950170-22-009728
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1650696/000095017022009728/lsf-20220331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1650696/000095017022009728/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $9.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $7.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-01-01 to 2022-03-31 | $1.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-01-01 to 2022-03-31 | $103.8k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$14.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | $5.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$14.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | −$1.55 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$1.55 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$3.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $701.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-03-31 | $27.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $41.7m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $57.7m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $5.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $9.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-03-31 | $48.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,464 characters.

*The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2021. 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, 2021.*

### Overview

Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, Harvest snacks and other food items, and roasted and instant coffees, teas and hot chocolate. Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients. Laird Superfood’s long-term goal is to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality, allowing the Company to maximize penetration of a multi-billion-dollar opportunity in the grocery market.

We have experienced strong sales growth since inception. Net sales increased to $9.3 million for the three months ended March 31, 2022, from $7.4 million for the three months ended March 31, 2021, representing net sales growth of 26%. The growth in the three months ended March 31, 2022 was primarily driven by a significant expansion of our customer base in online and wholesale 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* and *pickybars.com*. We believe that, along with a trusted brand name, extensive proprietary distribution is a critical long-term and sustainable barrier to entry in the food industry.

Our online business is two pronged and consists of direct-to-consumer sales (*lairdsuperfood.com* and *pickybars.com*) and *Amazon.com*. For the three months ended March 31, 2022 and 2021, the online business made up 58% and 59% 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 websites allows Laird Superfood to educate consumers on the benefits of our products and ingredients, while providing a positive customer experience. We believe this experience leads to higher retention rates among repeat users and subscribers, as evidenced by repeat users and subscribers accounting for approximately three-fourths of direct-to-consumer sales for the three months ended March 31, 2022.

Our wholesale business addresses the $800 billion grocery industry, specifically the $259 billion Natural, Organic and Functional Foods and Beverages sub-segment, which has been increasing its proportion of the grocery industry, as well as many non-grocery retail channels. For the three months ended March 31, 2022 and 2021, wholesale made up 41% and 39% of our net sales, respectively. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. We currently estimate our products are in approximately 8,000 retail door locations with over 36,000 points of distribution and we believe the long-term potential store base exceeds 20,000 retail locations in the United States. The diversity of our retail channel represents a strong competitive advantage for Laird Superfood and provides us with a larger total addressable market than would be considered normal for a food brand that is singularly focused on the grocery market.

### Recent Developments

### Executive Transitions

Effective January 31, 2022, the Company’s Board of Directors appointed Jason Vieth as the Company’s President and Chief Executive Officer and elected Mr. Vieth as a director of the Company. Mr. Vieth joined the Company from Sovos Brands, Inc., where he most recently served as executive vice president and group general manager of the Breakfast and Snacks segment. Before joining Sovos Brands in January 2020, Mr. Vieth served as chief executive officer of Poppi, a producer of prebiotic soda, from April 2019 to January 2020 and president of Life Time Fitness’ Life Cafe from April 2017 to April 2019 and held various management positions for WhiteWave Foods Company from January 2008 to April 2017. Mr. Vieth replaced Paul Hodge, who stepped down as President and Chief Executive Officer and a director of the Company upon Mr. Vieth’s appointment.

On April 1, 2022, Andrew Judd was appointed as Chief Commercial Officer, responsible for the commercial strategy and the development of the Company. Mr. Judd will oversee marketing, sales, product development, and customer experience to drive business growth and expand market share. Mr. Judd is an experienced marketing leader focused on building exceptional teams and go-to-market models that build brands and businesses. He has led teams across brand marketing, insights, and creative services from large strategic CPG enterprises to emerging high-growth brands. Most recently, he was CMO of Yasso. Before that he served as CMO of ONE Brands and VP Marketing for the Boulder Brands business unit of Pinnacle Foods. Previous roles included leading the management of the So Delicious brand at WhiteWave, Category Director for ice cream, iced coffee, blended beverages and value-added milk portfolio at Saputo Dairy Foods, and various roles at Campbell Soup Company.

On April 8, 2022, James Scott McGuire notified the Company of his resignation as Chief Operating Officer of the Company, effective April 30, 2022. In connection with Mr. McGuire’s resignation, Mr. McGuire and the Company entered into an independent contractor agreement pursuant to which Mr. McGuire will provide consulting services to the Company as needed and directed through November 16, 2022. In addition, the Company will make a lump sum payment equal to six months of base salary to Mr. McGuire, plus payment of COBRA premiums for up to six months.

### Proceeds from Insurance Settlement

In 2021, the Company experienced loss of product for which related costs were presented in costs of goods sold and operating losses in the consolidated statements of operations and cash flows for the year ended December 31, 2021. The Company entered into discussions with the counterparty at that time to seek resolution however no amounts to be recovered were reasonably estimable or certain to be collected. In February 2022, the Company settled with the co-manufacturer and recovered costs of $205 thousand related to lost product, shipping costs, labor, and overhead. These amounts are presented as an offset to costs of goods sold and operating losses in the consolidated unaudited statements of operations and cash flows for the three months ended March 31, 2022.

### Key Factors Affecting our Performance

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

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

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

### Ability to Acquire and Retain Customers at a Reasonable Cost

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

### Ability to Drive Repeat Usage of Our Products

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

### Ability to Expand Our Product Line

Our goal is to substantially expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products, each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time.

### Ability to Expand Gross Margins

Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing of raw materials, controlling labor and shipping costs, controlling the impacts of inflationary market factors, as well as spreading other production-related costs over greater manufacturing volumes.

### Ability to Expand Operating Margins

Our ability to expand operating margins will be impacted by our ability to cover fixed general and administrative costs and variable sales and marketing costs with higher revenues and gross profit dollars.

### Ability to Manage Our Global Supply Chain and Expand Production In-line with Demand

Our ability to grow and meet future demand will be affected by our ability to properly plan for and source inventory from a variety of suppliers located inside and outside the United States. We may encounter difficulties in sourcing products.

### Ability to Optimize Key Components of Working Capital

Our ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by our ability to effectively manage all the key working capital components that could influence our cash conversion cycle.

### Components of Results of Operations

### Sales, net

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

### Cost of Goods Sold

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

### Operating Expenses

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

### Income Taxes

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

### Results of Operations

### Comparison of the three months ended March 31, 2022 (“Q1 2022”) and March 31, 2021 (“Q1 2021”)

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

|  | For the Three Months Ended March 31, 2022 | 2021 | $% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Sales, net | $9,340,013 | $7,396,895 | $1,943,118 | 26% |
| Cost of goods sold | (7,390,203) | (5,559,499) | (1,830,704) | 33% |
| Gross profit | 1,949,810 | 1,837,396 | 112,414 | 6% |
| Gross margin | 20.9% | 24.8% |  |  |
| General and administrative | 11,828,644 | 3,643,394 | 8,185,250 | 225% |
| Research and product development | 103,833 | 240,687 | (136,854) | (57)% |
| Sales and marketing | 3,971,640 | 3,297,720 | 673,920 | 20% |
| Total expenses | 15,904,117 | 7,181,801 | 8,722,316 | 121% |
| Operating loss | (13,954,307) | (5,344,405) | (8,609,902) | 161% |
| Total other income (expense) | (179,321) | 13,901 | (193,222) | (1390)% |
| Loss before income taxes | (14,133,628) | (5,330,504) | (8,803,124) | 165% |
| Income tax expense | 5,774 | — | 5,774 | 100% |
| Net loss | (14,139,402) | (5,330,504) | (8,808,898) | 165% |

#### Sales, Net

|  | For the Three Months Ended March 31, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales, net | $9,340,013 | $7,396,895 | $1,943,118 | 26% |

Net sales increased to $9.3 million in Q1 2022 from $7.4 million in Q1 2021. This increase was due to growth in our online and wholesale channels, primarily caused by an increase in sales volume, as well as additional sales attributable to the acquisition of Picky Bars. Products introduced after Q1 2021, including Activate Immune Support, Aloha Plant Milk, Baking Mixes, Mushroom Botanicals, OatMac Superfood Creamers, Picky Bars products, and Renew Rest & Recover, and additional Liquid Creamer flavors, accounted for $2.5 million of sales in Q1 2022. New sales promotions drove an increase in discounts of $0.3 million offsetting net revenue growth.

#### Cost of Goods Sold

|  | For the Three Months Ended March 31, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of Goods Sold | $(7,390,203) | $(5,559,499) | $(1,830,704) | 33% |

Cost of goods sold increased to $7.4 million in Q1 2022 from $5.6 million in Q1 2021, primarily due to sales growth in Q1 2021 and the corresponding increase in consumables ($1.6 million increase) and outbound shipping and freight expenses ($0.4 million increase) combined with general inflationary pressures.

#### Gross Profit

|  | For the Three Months Ended March 31, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Gross Profit | $1,949,810 | $1,837,396 | $112,414 | 6% |

Gross profit increased to $1.9 million in Q1 2022 from $1.8 million in Q1 2021. Gross margin was 20.9% in Q1 2022 compared to 24.8% in Q1 2021 with benefits related to optimized DTC parcel cost and improvement in production and waste expenses associated with our liquid creamer products, offset by elevated promotional activity, elevated inventory costs, and general inflationary pressures.

#### Operating Expenses

| Operating Expenses | For the Three Months Ended March 31, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and Administrative | $11,828,644 | $3,643,394 | $8,185,250 | 225% |
| Research and Product Development | 103,833 | 240,687 | (136,854) | (57)% |
| Sales and Marketing | 3,971,640 | 3,297,720 | 673,920 | 20% |
| Total Operating Expenses | $15,904,117 | $7,181,801 | $8,722,316 | 121% |

General and administrative expense increased to $11.8 million in Q1 2022 from $3.6 million in Q1 2021, primarily due to impairment of goodwill and intangible assets recorded in Q1 2022 of $6.5 million and $1.5 million, respectively. See Note 9 to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for more information.

Research and product development expense decreased to $0.1 million in Q1 2022 from $0.2 million in Q1 2021, primarily due to costs incurred to bring new products to market in Q1 2021, which costs were not repeated in Q1 2022.

Sales and marketing expense increased to $4.0 million in Q1 2022 from $3.3 million in Q1 2021, primarily due to advertising expense and marketing fees.

#### Other Income (Expense)

|  | For the Three Months Ended March 31, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Other income (expense) | $(179,321) | $13,901 | $(193,222) | (1390)% |

Other income (expense) is composed of interest income, gains and losses on sales of equipment, and income and losses related to investment securities available-for-sale. Other income decreased to $(179.3) thousand of expense in Q1 2022 from $13.9 thousand of income in Q1 2021, primarily due to realized losses on the sale of available for sale securities in Q1 2022.

### Liquidity and Capital Resources

As of March 31, 2022, we had incurred accumulated net losses of $69.9 million, including operating losses of $14.0 million and $5.3 million for Q1 2022 and Q1 2021, respectively. We expect to incur additional operating losses as we continue efforts to grow our business. We have historically financed our operations and capital expenditures through private placements of our preferred stock and common stock, our initial public offering, as well as lines of credit and term loans.

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

As of March 31, 2022, we had $27.3 million of cash-on-hand and $19.7 million of available borrowings under our lines of credit. As of December 31, 2021, we had $31.7 million of cash-on-hand and investments and $19.7 million of available borrowings under our lines of credit. As of March 31, 2022, and December 31, 2021, we had no outstanding notes payable and no amounts were outstanding under our lines of credit.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the continued expansion of sales and marketing activities, the enhancement of our product platforms, the introduction of new products and acquisition activity. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:

- Cash outflows for capital expenditures were $0.7 million in Q1 2022 and $0.1 million in 2021. The increase was to support the increase in our manufacturing and production capacity needs. The majority of capital expenditures for fiscal 2022 occurred in Q1 2022 and we do not expect to incur significant capital expenditures in the remainder of the year.
- The Company has lease arrangements for certain equipment and facilities, including corporate and manufacturing space. As of March 31, 2022, the Company had fixed lease payment obligations of $5.1 million, with $0.7 million payable within 12 months.
- As of March 31, 2022, $5.3 million of current liabilities were accrued related to short term operating activities, short-term lease obligations, and personnel costs.
- Advertising and marketing expenditures were $2.9 million in Q1 2022 and $2.4 million in Q1 2021. We expect to continue to invest in these activities as part of the strategic expansion of sales volume.

We expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business. We believe our cash, cash equivalents, our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for the next 12 months and beyond based on our current business plans.

### Cash Flows

### Comparison of the three months ended March 31, 2022 and 2021:

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

|  | For the Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Cash flows from operating activities | $(3,601,973) | $(5,143,385) |
| Cash flows from investing activities | 7,811,897 | (200,088) |
| Cash flows from financing activities | 14,248 | (119,190) |
| Net change in cash | $4,224,172 | $(5,462,663) |

#### Cash Flows from Operating Activities

Cash used in operating activities was $3.6 million for Q1 2022 as compared to $5.1 million used in Q1 2021. The change is driven by operating net losses, decreasing inventory levels, and decreasing prepaid expenses.

#### Cash Flows from Investing Activities

Cash provided by investing activities was $7.8 million for Q1 2022 as compared to cash used in investing activities of $0.2 million for Q1 2021. The change is primarily due to proceeds from the sale of available-for-sale investments in Q1 2022.

#### Cash Flows from Financing Activities

Cash provided by financing activities was $14.2 thousand for Q1 2022 compared to $0.1 million of cash used in Q1 2021. Cash provided for Q1 2022 related to stock option exercises, while cash used in Q1 2021 primarily related to outflows from stock issuance costs and tax payments withheld from stock-based compensation offset by inflows from stock option exercises.

### Segment Information

We have one operating segment and one reportable segment, as our Chief Executive Officer reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

### Critical Accounting Estimates

The preparation of consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements of this Form 10-Q describes the significant accounting policies and methods used in the preparation of the Company’s unaudited consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

### Revenue Recognition

We recognize revenue for the sale of our product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale. Revenue is measured by the transaction price, which is defined as the amount of consideration we expect to receive in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes consumer incentives, trade promotions, and allowances, such as coupons, discounts, rebates, incentives, cooperative advertising, and other programs. Variable consideration related to these programs is recorded as a reduction to revenue based on amounts we expect to pay.

The transaction price contains estimates of known or expected variable consideration. We base these estimates on current performance, historical utilization, and projected redemption rates of each program. We review and update these estimates regularly until the incentives or product returns are realized and the impact of any adjustments are recognized in the period the adjustments are identified. As of March 31, 2022 and December 31, 2021, variable consideration estimates represent $0.4 million and $0.3 million, respectively, of accrued expenses on the unaudited consolidated balance sheets.

During Q1 2022, there was not, and we do not believe there is a reasonable likelihood there will be a material change in the estimates or assumptions used to recognize revenue. As noted above, estimates are made based on historical experience and other factors. Typically, programs that are offered have a short duration and, historically, the difference between actual experience compared to estimated redemptions and performance has not been significant to the quarterly or annual consolidated financial statements. However, if the level of redemption rates or performance were to vary significantly from estimates, we may be exposed to gains or losses that could be material. We have not made any material changes in the accounting methodology used to recognize revenue during the past three fiscal years.

### Business Combinations

We account for acquired businesses using the acquisition method of accounting, which requires that once control of a business is obtained, 100% of the assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

We use various models to determine the value of assets acquired and liabilities assumed such as net realizable value to value inventory, cost method and market approach to value property, and multi-period excess earnings to value intangibles and discounted cash flow to value goodwill.

For significant acquisitions we may use independent third-party valuation specialists to assist us in determining the fair value of assets acquired and liabilities assumed.

Significant judgment is often required in estimating the fair value of assets acquired and liabilities assumed, particularly intangible assets. We make estimates and assumptions about projected future cash flows including sales growth, operating margins, attrition rates, and discount rates based on historical results, business plans, expected synergies, perceived risk and marketplace data considering the perspective of marketplace participants. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may be considered to have indefinite useful lives.

While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions, which could result in subsequent impairments. During the year ended December 31, 2021, we had a material business combination with Picky Bars. See Note 2 to our unaudited consolidated financial statements included elsewhere in this Form 10-Q for more information.

### Impairment of Goodwill and Long-Lived Assets

Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, the fair value of the reporting unit may be more-likely-than-not less than its carrying amount or if significant changes to macro-economic factors related to the reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. The quantitative test compares the fair value of a reporting unit with its carrying amount. Upon performing the quantitative test, if the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill. During the three months ended March 31, 2022 and 2021, impairment charges for goodwill were $6.5 million and $0, respectively.

Long-lived assets and definite life intangibles are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Examples include a significant adverse change in the extent or manner in which we use the asset, a change in its physical condition, or an unexpected change in financial performance. When evaluating long-lived assets and definite life intangibles for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset. For assets held for sale, we compare the carrying value of the disposal group to fair value. The impairment is the excess of the carrying value over the fair value of the asset. During the three months ended March 31, 2022 and 2021, there were impairment charges for long-lived assets of $1.5 million and $0, respectively.

### Stock Based Compensation

Compensation cost relating to share-based payment transactions is measured based on the grant date fair value of the equity or liability instruments issued. The fair value of the compensation is estimated utilizing valuation methods including Black-Scholes and Monte Carlo, and is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. While there is inherent uncertainty in the estimated fair value of the awards, management believes that the expectations and assumptions are reasonable.

### Recent Accounting Pronouncements

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

### Emerging Growth Company Status

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

- a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
- an exemption from the auditor attestation requirement on the effectiveness of our internal control over financial reporting;
- reduced disclosure about our executive compensation arrangements; and
- no non-binding advisory votes on executive compensation or golden parachute arrangements.

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

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

## Controls and procedures

As filed, 4,869 characters.

### Limitations on Effectiveness of Controls and Procedures

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

### Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Company management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure.

In designing and evaluating 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.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2022, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2022 due to the material weakness in internal control over financial reporting described below.

#### Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of financial statements for the three months ended March 31, 2022, our management identified a material weakness in the Company’s internal control over financial reporting, relating to a miscalculation of basic and diluted net loss per share caused by a formula error. Our independent registered public accounting firm identified this error, and the error was corrected by management. We believe our failure to identify this error resulted from a material weakness related to ineffective operation of management review controls related to financial reporting due to staffing constraints.

Based on the material weakness described above, management concluded that the Company’s internal control over financial reporting was not effective as of March 31, 2022. However, because the error and material weakness were discovered before the filing of this report, management has concluded that the existence of this material weakness did not result in a material misstatement of the Company’s financial statements included in this report.

#### Remediation Measures

With the oversight of senior management and our audit committee, we have begun taking steps and plan to take additional measures to remediate the underlying causes of the identified material weakness, primarily through the hiring of additional accounting and finance resources; the development and implementation of additional formal, documented policies and procedures; and improved processes and management review control activities.

We believe the actions described above will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. However, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weakness has been remediated. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended of March 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 150 characters.

There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Filed May 12, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-009728. Last ingested by Listed: Oct 24, 2026, 15:14 ET. No prices; not investment advice.