# Laird Superfood, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Laird Superfood, Inc.](/companies/lsf.md) (CIK 1650696)
- Form: 10-Q
- Filed: 2022-11-10
- Accepted by EDGAR: Nov 10, 2022, 21:22 ET
- Period: 2022-09-30
- Accession: 0000950170-22-024502
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1650696/000095017022024502/lsf-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1650696/000095017022024502/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $8.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $26.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $6.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $21.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $2.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $5.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $115.1k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $335.4k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$5.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$24.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $5.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$5.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$24.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.63 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$2.71 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.63 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$2.71 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 9,178,533 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 9,136,071 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$11.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $20.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $33.3m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $47.6m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $5.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $9.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $37.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,950 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.

Net sales decreased to $8.8 million for the three months ended September 30, 2022 from $10.9 million for the three months ended September 30, 2021. Net sales decreased to $26.9 million for the nine months ended September 30, 2022, from $27.4 million for the nine months ended September 30, 2021. The decline was primarily in our club and online direct to consumer ("DTC") channels as we significantly reduced inefficient marketing spend. We continue to optimize our marketing investment by cutting out inefficient spend and spending less on direct media for the DTC channel compared to the prior year. Lower media spend resulted in significant reduction of new customer orders in the quarter. Additionally, online segment sales were impacted by price increases implemented at the end of the second quarter and cancellation of free shipping due to inflationary concerns. Declines in DTC were in part offset by substantial growth on *Amazon.com*, reflecting a momentum driven by changes we have made with regard to our approach to this channel. Our wholesale channel sales, excluding club, were challenged by distributor to retailer fulfilment issues resulting in out of stocks on shelves. We are actively addressing these issues in partnering up with brokers and retailers.

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 trusted brand names, 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 September 30, 2022 and 2021, the online business made up 66% and 58% of our net sales, respectively. For the nine months ended September 30, 2022 and 2021, the online business made up 61% and 60% 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 and nine months ended September 30, 2022.

Our wholesale business addresses the $766 billion grocery industry, specifically the $281 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 and nine months ended September 30, 2022, wholesale made up 34% and 38% of our net sales, respectively. For the three and nine months ended September 30, 2021, wholesale made up 41% and 38% 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 5,000 retail door locations with over 26,000 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

### Entry into Co-Packer Agreement

As part of the plan, the Company will close its production facilities in Sisters, Oregon and reduce headcount by approximately 46 employees, which represents approximately 55% of its total employees. The Company expects to recognize approximately $0.5 million of restructuring charges consisting of severance and other employee-related costs. Other costs associated with building and lease exit costs, any impairments of assets, and other related restructuring and exit costs are still being evaluated. The Company expects substantially all charges associated with the workforce reduction to be incurred during the quarter ending December 31, 2022, with related cash payments expected to be substantially paid out by the end of the first quarter of 2023.

### 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 oversees 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 May 17, 2022, the Company’s Board of Directors appointed Anya Kochetova Hamill as the Company’s interim Chief Financial Officer, effective July 1, 2022.

Ms. Hamill possesses more than 20 years of strategic finance experience in both public consumer packaged goods and private equity backed emerging companies in the natural foods and beverages space. Ms. Hamill joined the Company as Vice President, Financial Planning and Analysis in April 2022 from Little Secrets Chocolate, where she served as chief financial officer from September 2018. Previously, Ms. Hamill served as the senior director of finance, premium yogurt at Danone North America from May 2017 through March 2018, and as senior director of finance, plant based beverage and food and various other finance positions at WhiteWave Foods from March 2003 through May 2017. Ms. Hamill holds an MBA with a finance concentration from Leeds School of Business at the University of Colorado and a Bachelor of Arts from Saint-Petersburg State University of Engineering and Economics.

### 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 seeking to grow our customer base through both paid and organic online channels, as well as by expanding our presence in a variety of physical 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 expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products, each designed around daily use. Our pace of growth will be partially affected by the cadence and magnitude of new product launches over time.

### Ability to Expand Gross Margins

Our overall profitability will be impacted by our ability to expand gross margins through effective sourcing of raw materials, controlling labor and shipping costs, controlling the impacts of inflationary market factors, as well as managing co-packer relationships.

### Ability to Expand Operating Margins

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

### Ability to Manage Our Global Supply Chain

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

### Ability to Optimize Key Components of Working Capital

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

### Components of Results of Operations

### Sales, net

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

### Cost of Goods Sold

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

### Operating Expenses

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

### 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 September 30, 2022 (“Q3 2022”) and September 30, 2021 (“Q3 2021”)

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

|  | Three Months Ended September 30, 2022 | 2021 | Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Sales, net | $8,844,845 | $10,865,914 | $(2,021,069) | (19)% |
| Cost of goods sold | (6,773,029) | (7,667,075) | 894,046 | (12)% |
| Gross profit | 2,071,816 | 3,198,839 | (1,127,023) | (35)% |
| Gross margin | 23.4% | 29.4% |  |  |
| General and administrative | 4,383,868 | 4,254,124 | 129,744 | 3% |
| Research and product development | 115,077 | 242,604 | (127,527) | (53)% |
| Sales and marketing | 3,390,857 | 4,014,753 | (623,896) | (16)% |
| Total expenses | 7,889,802 | 8,511,481 | (621,679) | (7)% |
| Operating loss | (5,817,986) | (5,312,642) | (505,344) | 10% |
| Total other income (expense) | 79,777 | 10,721 | 69,056 | 644% |
| Loss before income taxes | (5,738,209) | (5,301,921) | (436,288) | 8% |
| Income tax expense | — | (49,777) | 49,777 | (100)% |
| Net loss | $(5,738,209) | $(5,351,698) | $(386,511) | 7% |

33

#### Sales, Net

|  | Three Months Ended September 30, 2022 | 2021 | $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales, net | $8,844,845 | $10,865,914 | $(2,021,069) | (19)% |

Net sales decreased to $8.8 million in Q3 2022 from $10.9 million in Q3 2021. The decline was primarily due to lower volume in club and DTC sales due to reduced marketing spend, the price increase implemented at the end of second quarter, and removal of free shipping for orders under $40 (forty) dollars.

#### Cost of Goods Sold

|  | Three Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Costs of goods sold | $(6,773,029) | $(7,667,075) | $894,046 | (12)% |

Cost of goods sold decreased to $6.8 million in Q3 2022 from $7.7 million in Q3 2021, primarily due to decreased sales volume and a decrease in labor costs that resulted from gained efficiencies and restructuring of our internal supply chain organization. This was offset in part by inflationary pressures on ocean freight, inbound and outbound shipping and energy costs.

#### Gross Profit

|  | Three Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Gross Profit | $2,071,816 | $3,198,839 | $(1,127,023) | (35)% |

Gross profit decreased to $2.1 million in Q3 2022 from $3.2 million in Q3 2021. Gross margin was 23.4% in Q3 2022 compared to 29.4% in Q3 2021. The margin decrease was driven primarily by deleverage of fixed manufacturing costs on lower production volume as we focused on optimizing inventory balances this year. Higher costs of inbound shipping and outbound freight also contributed to margin erosion in the quarter. This was partially offset by lower labor costs resulting from rightsizing of the organization in 2022.

#### Operating Expenses

| Operating Expenses | Three Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and Administrative | $4,383,868 | $4,254,124 | $129,744 | 3% |
| Research and Product Development | 115,077 | 242,604 | (127,527) | (53)% |
| Sales and Marketing | 3,390,857 | 4,014,753 | (623,896) | (16)% |
| Total Operating Expenses | $7,889,802 | $8,511,481 | $(621,679) | (7)% |

General and administrative expense was flat, with a slight increase to $4.4 million in Q3 2022 from $4.3 million in Q3 2021, driven by lower personnel costs, related to executive departures earlier this year, offset by increased professional fees and other administrative spend related to one time costs to exit contracts.

Research and product development expense decreased to $0.1 million in Q3 2022 from $0.2 million in Q3 2021 as we continue to focus on strengthening the performance of current product offerings in 2022 rather than the rapid product development strategy in 2021 and prior.

Sales and marketing expense decreased to $3.4 million in Q3 2022 from $4.0 million in Q3 2021, primarily due to reduced advertising expense and personnel costs.

#### Other Income

|  | Three Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Other income | $79,777 | $10,721 | $69,056 | 644% |

Other income is composed of interest and dividend income and sublease rental income. Other income increased to $79.8 thousand of income in Q3 2022 from $10.7 thousand of income in Q3 2021, primarily due to the sublease agreement entered into in Q2 2022 and income on money market accounts elevated by the increases in interest rates.

### Comparison of the nine months ended September 30, 2022 (“YTD 2022”) and September 30, 2021 (“YTD 2021”)

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

|  | Nine Months Ended September 30, 2022 | 2021 | $% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Sales, net | $26,858,864 | $27,443,394 | $(584,530) | (2)% |
| Cost of goods sold | (21,259,300) | (20,225,269) | (1,034,031) | 5% |
| Gross profit | 5,599,564 | 7,218,125 | (1,618,561) | (22)% |
| Gross margin | 20.8% | 26.3% |  |  |
| General and administrative | 18,848,037 | 12,060,429 | 6,787,608 | 56% |
| Research and product development | 335,377 | 858,143 | (522,766) | (61)% |
| Sales and marketing | 11,115,499 | 11,233,765 | (118,266) | (1)% |
| Total expenses | 30,298,913 | 24,152,337 | 6,146,576 | 25% |
| Operating loss | (24,699,349) | (16,934,212) | (7,765,137) | 46% |
| Total other income (expense) | (77,008) | 36,246 | (113,254) | (312)% |
| Loss before income taxes | (24,776,357) | (16,897,966) | (7,878,391) | 47% |
| Income tax expense | (5,774) | (86,495) | 80,721 | (93)% |
| Net loss | $(24,782,131) | $(16,984,461) | $(7,797,670) | 46% |

#### Sales, Net

|  | Nine Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales, net | $26,858,864 | $27,443,394 | $(584,530) | (2)% |

Net sales decreased to $26.9 million in YTD 2022 from $27.4 million in YTD 2021. The decline was primarily due to lower sales in our direct to consumer channel driven by significantly lower dedicated media spend and elevated discounts, as well as lower club sales. This was offset by double digits growth in Amazon.com sales and new distribution gains in wholesale channel as well as acquisition of Picky Bars in Q2 2021.

#### Cost of Goods Sold

|  | Nine Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Costs of goods sold | $(21,259,300) | $(20,225,269) | $(1,034,031) | 5% |

Cost of goods sold increased to $21.3 million in YTD 2022 from $20.2 million in YTD 2021, primarily due to inflationary pressures in costs of raw materials and packaging inbound and outbound freight expenses offset in part by decrease in labor costs due to gained efficiencies and organizational rightsizing.

#### Gross Profit

|  | Nine Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Gross Profit | $5,599,564 | $7,218,125 | $(1,618,561) | (22)% |

Gross profit decreased to $5.6 million in YTD 2022 from $7.2 million in YTD 2021. Gross margin was 20.8% in YTD 2022 compared to 26.3% in YTD 2021. The margin decrease is driven by elevated promotional activity, and general inflationary pressures on raw materials, packaging and freight combined with fixed costs deleverage on lower production volumes this year as compared to prior year as we focused on optimizing inventory levels to improve working capital turns. This was partially offset by lower labor costs resulting from rightsizing of the organization in 2022.

#### Operating Expenses

| Operating Expenses | Nine Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| General and Administrative | $18,848,037 | $12,060,429 | $6,787,608 | 56% |
| Research and Product Development | 335,377 | 858,143 | (522,766) | (61)% |
| Sales and Marketing | 11,115,499 | 11,233,765 | (118,266) | (1)% |
| Total Operating Expenses | $30,298,913 | $24,152,337 | $6,146,576 | 25% |

General and administrative expense increased to $18.8 million in YTD 2022 from $12.1 million in YTD 2021, primarily due to impairment of goodwill and intangible assets recorded in YTD 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. Excluding, cost of impairment of goodwill and intangible assets, general and administrative expenses decreased by $1.3 million driven primarily by reduced personnel costs including stock-based compensation.

Research and product development expense decreased to $0.3 million in YTD 2022 from $0.9 million in YTD 2021, as we continue to focus on strengthening the performance of current product offerings in 2022 rather than the rapid product development strategy in 2021 and prior.

Sales and marketing expense decreased to $11.1 million in YTD 2022 from $11.2 million in YTD 2021, primarily due to advertising expense and marketing fees.

#### Other Income (Expense)

|  | Nine Months Ended September 30, 2022 | 2021 | 2022 v. 2021 Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Other income (expense) | $(77,008) | $36,246 | $(113,254) | (312)% |

Other income (expense) is composed of interest income, rental income, income and losses related to investment securities available-for-sale, and other non-operating gains and losses. Other income (expense) decreased to $(77.0) thousand of expense in YTD 2022 from $36.2 thousand of income in YTD 2021, primarily due to the realized losses on the sale of available for sale securities in Q1 2022.

### Liquidity and Capital Resources

As of September 30, 2022, we had incurred accumulated net losses of $80.6 million, including operating losses of $24.7 million and $16.9 million for YTD 2022 and YTD 2021, respectively. We expect to incur additional operating losses as we continue efforts to grow our business, however we have enacted strategic rightsizings of the organization throughout 2022 and will continue to seek to optimize spending and gross margins. 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 September 30, 2022, we had $21.0 million of cash-on-hand and $5.0 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 September 30, 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 $1.1 million in YTD 2022 and $1.0 million in YTD 2021. The increase was to support the increase in our manufacturing and production capacity needs. The majority of capital expenditures for YTD 2022 occurred in Q1 2022 and we do not expect to incur significant capital expenditures in the near future.
- The Company has lease arrangements for certain equipment and facilities, including corporate and manufacturing space. As of September 30, 2022, the Company had fixed lease payment obligations of $4.9 million, with $0.7 million payable within 12 months.
- As of September 30, 2022, $4.9 million of current liabilities were accrued related to short term operating activities and personnel costs.
- Advertising and marketing expenditures were $8.2 million in YTD 2022 and $8.4 million in YTD 2021. We expect to continue to invest in these activities as part of the strategic expansion of sales volume, however, we have made strategic shifts to reduce and improve the efficacy of future customer acquisition costs.

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 nine months ended September 30, 2022 and 2021:

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

|  | For the Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Cash flows from operating activities | $(11,133,377) | $(14,242,999) |
| Cash flows from investing activities | 8,981,156 | (12,092,290) |
| Cash flows from financing activities | 121,090 | 184,747 |
| Net change in cash | $(2,031,131) | $(26,150,542) |

#### Cash Flows from Operating Activities

Cash used in operating activities was $11.1 million for YTD 2022 as compared to $14.2 million used in YTD 2021. The improvement in cash burn is driven by decreasing inventory levels, prepaid expenses, and lower general and administrative spend.

#### Cash Flows from Investing Activities

Cash provided by investing activities was $9.0 million for YTD 2022 as compared to cash used in investing activities of $12.1 million for YTD 2021. The change is primarily due to proceeds from the sale of available-for-sale securities in YTD 2022 and cash used in the acquisition of Picky Bars in YTD 2021.

#### Cash Flows from Financing Activities

Cash provided by financing activities was $121 thousand and $185 thousand for YTD 2022 and YTD 2021, respectively, primarily related to inflows from stock option exercises.

### Segment Information

We have one operating segment and one reportable segment. 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 financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Summary of Significant Accounting Policies” of the Notes to condensed consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2021 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2021 Form 10-K.

### 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 $1.235 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 $1.235 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, 4,191 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.

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 September 30, 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 September 30, 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. The issue was corrected prior to the filing of the quarterly report on the Form 10-Q for the period ended March 31, 2022.

#### Remediation Measures

With the oversight of senior management and our audit committee, we have taken steps 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.

Given the routine nature of the error that gave rise to the material weakness in the first quarter of 2022, 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 operating 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 September 30, 2022, aside from those described above, 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 Nov 10, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-024502. Last ingested by Listed: Oct 24, 2026, 15:14 ET. No prices; not investment advice.