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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-248513

PROSPECTUS

2,650,000 Shares

LOGO

Laird Superfood, Inc.

Common Stock

 

 

This is the initial public offering of our common stock. We are offering to sell 2,650,000 shares of our common stock.

Prior to this offering there has been no public market for our shares. The initial public offering is $22.00 per share of common stock.

The common stock will be listed on the NYSE American under the symbol “LSF”.

We are an “emerging growth company” as that term is used in the U.S. federal securities laws and, as such, have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.

Danone Manifesto Ventures, PBC, an existing shareholder, has agreed to purchase $2,000,020 of our common stock in a concurrent private placement, at a price per share equal to the purchase price to the public in this offering. The sale of shares in the concurrent private placement will not be registered under the Securities Act of 1933, as amended. The closing of this offering is not conditioned upon the closing of the concurrent private placement. See “Prospectus Summary — Concurrent Private Placement.”

 

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 19 of this prospectus to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

          Per Share           Total  

Initial public offering price

     $ 22.00        $ 58,300,000  

Underwriting discounts and commissions(1)

     $ 1.54        $ 4,081,000  

Proceeds, before expenses, to us

     $ 20.46        $ 54,219,000  

 

(1)

In addition, we have agreed to reimburse the underwriters for certain expenses. See the section titled “Underwriting” for a description of the compensation and other items of value payable to the underwriters.

We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an additional 397,500 shares of common stock to cover over-allotments, if any.

Delivery of the shares of our common stock will be made on or about September 25, 2020, subject to customary closing conditions.

Joint Book-Running Managers

 

Canaccord Genuity   Craig-Hallum Capital Group

Co-Manager

Roth Capital Partners

The date of this prospectus is September 22, 2020


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LOGO

KAIRD SUPERFOOD


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LOGO

 

 

LAIRD SUPERFOOD BETTER FOOD. BETTER YOU. MISSION To provide great tasting, high-quality, plant-based products that are healthy, convenient, affordable and available to all. Quarterly net sales 185% CAGR* Vision we believe better food leads to a better world. Ttm sales ttm yoy sales growth ttm gross margin 1h’20 sales 1h’20 sales Growth 1h’20 GM% $18.8M 92% 34% $11.1M 104% 31% 41% 36% 61% 91% 120% 90% * Represents annualized compound annual growth rate from January 2016 through June 2020.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

Risk Factors

     19  

Special Note Regarding Forward-Looking Statements

     47  

Industry and Market Data

     49  

Use of Proceeds

     50  

Dividend Policy

     51  

Capitalization

     52  

Dilution

     54  

Selected Financial Data

     56  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     58  

Letter From Paul Hodge, Our Co-Founder and Chief Executive Officer

     75  

Business

     76  

Management

     100  

Executive Compensation

     107  

Principal Shareholders

     121  

Certain Relationships and Related Party Transactions

     123  

Description of Capital Stock

     127  

Shares Eligible for Future Sale

     131  

Material U.S. Federal Income Tax Considerations

     133  

Underwriting

     137  

Legal Matters

     144  

Experts

     144  

Where You Can Find More Information

     144  

Index to Financial Statements

     F-1  

Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor any of the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.

Laird Superfood, the Laird Superfood logo, Superfood Creamer, Instafuel and other registered or common law trade names, trademarks, or service marks of Laird Superfood appearing in this prospectus are the property of Laird Superfood. This prospectus contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, our trademarks and trade names referred to in this prospectus appear without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and trade names. Crescendo® is a registered trademark of Bunn-O-Matic Corporation.


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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Laird Superfood,” “the Company,” “we,” “us,” and “our” in this prospectus refer to Laird Superfood, Inc.

Our Company

Laird Superfood. Better Food. Better You.

Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The Laird Superfood brand is increasingly recognized and trusted by a growing number of consumers. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, and roasted and instant coffees, teas and hot chocolate. Over time, Laird Superfood plans to aggressively and strategically grow revenues by further penetrating the multi-billion-dollar market opportunity presented by our current product lines, as well as expanding our platform to include additional products that meet our strict plant-based ingredient criteria to diversify our revenue base and increase Laird Superfood’s total addressable market (“TAM”) opportunity.

Laird Superfood was founded in 2015 by friends and surfing partners, Laird Hamilton and Paul Hodge. Mr. Hamilton is one of the best-known big wave surfers in the world and well respected for his innovation in many board sports. Mr. Hodge is an entrepreneur who has built numerous environmentally and socially conscious companies in the solar, home technology, electric transportation and sporting industries. Mr. Hamilton has long sought different ways to derive the maximum possible energy from natural food sources to carry him through some of the most grueling surf and exercise sessions in the world. With the need to stay in the water for four to six hours per session, Mr. Hamilton experimented with blends of espresso and a variety of natural fats, such as coconut oil, to create beverages designed to provide stable and long-lasting sources of energy.

After years of development and personal trial, Mr. Hamilton created a plant-based recipe consisting of coconut-based ingredients and Aquamin, a mineral rich, calcified sea algae harvested off the coast of Iceland. Mr. Hamilton found these special ingredients provided him with an extended boost of energy beyond a traditional cup of coffee. With the help of several industry veterans, Mr. Hodge spent fourteen months testing over seventy different formulations searching for a recipe that could be produced in a cost-effective and scalable manner in order to bring affordable and convenient consumption to consumers. In July 2015, Laird Superfood launched its first product, the Original Superfood Creamer.

Gabrielle Reece, who serves as our Chief Brand Ambassador and is married to Mr. Hamilton, also contributed actively to developing Laird Superfood’s debut products. Ms. Reece is a professional athlete, media personality and Nike’s first female spokeswoman. Her passion for healthy living and fitness expertise make her an influential voice in the world of health and wellness, particularly with a female audience. Mr. Hamilton, Mr. Hodge and Ms. Reece are committed to optimizing nutrition to improve consumer health and achieve peak performance through a platform of Laird Superfood products that taste great and are accessible to the general public.



 

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Laird Superfood is driven by the mantra of “Better Food, Better You.” To support this vision, we plan to introduce products that fuel consumers from sunrise to sunset, as part of Laird Superfood’s “Daily Ritual.”

 

LOGO



 

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As a result of growing consumer demand for Laird Superfood products and the continued expansion of our omnichannel distribution strategy, our net sales have grown from $568 thousand in 2016 to $13.1 million in 2019 and $11.1 million in the first six months of 2020, representing an annualized compound annual growth rate of approximately 185%. During the same period, our gross margins have expanded from 24.8% in 2016 to 38.8% in 2019 and 31.0% in the first six months of 2020, which highlights the inherent operating leverage built into our vertically integrated business model. We believe additional gross margin expansion can be achieved via factory efficiencies and overhead absorption.

Our Market Opportunity in the Evolving Food and Beverage Industry

Laird Superfood participates in what the U.S. Census Bureau estimates to be a $695 billion grocery market as of 2019, which is the second largest retail market after the automobile industry. Laird Superfood is specifically focused on the fastest growing sub-segment of the food and beverage market: U.S. Natural, Organic and Functional Food and Beverages. According to the Nutrition Business Journal, in 2018, U.S. Natural, Organic and Functional Food and Beverages sales were approximately $152 billion and grew 6.6% from the prior year, which was faster than the 4.0% growth in the overall food and beverage industry according to the U.S. Census Bureau. Further, according to the Nutrition Business Journal, during the same period, third-party and direct e-commerce sales represented two of the four fastest growing channels for U.S. Natural, Organic and Functional Food and Beverages sales, which bodes well for Laird Superfood due to our strong online presence and omnichannel expansion strategy.

Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients. There is also increasing recognition of the environmental impact of animal-based products. This has led to significant growth in plant-based foods and beverages. Per the Plant-Based Foods Association, U.S. retail sales of plant-based foods increased 11% from 2018 to 2019, reaching a market value of $4.5 billion, compared to increases of 4% and 7% in the general grocery and natural foods categories, respectively. Among plant-based food categories, plant-based creamers was the highest growing category, experiencing 40% growth for the twelve month period ended April 2019 compared to growth of only 12% for dairy-based creamers.

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. We believe an authentic and trusted brand is the strongest barrier to entry and a sustainable source of differentiation in the consumer packaged goods (“CPG”) industry. We also believe a strong brand is a valuable platform that can be leveraged to expand beyond our current markets to achieve relevance across multiple grocery aisles, online and a wide array of other relevant points of distribution. While the barriers to entry for launching a food product in the CPG industry have fallen in recent years as a result of unlimited shelf space on the internet and targeted online marketing, the barriers to building an internationally recognized and trusted brand relevant to today’s consumer remain high.

Our Competitive Strengths

We believe the following strengths differentiate Laird Superfood and create long-term, sustainable competitive advantages.



 

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An Emerging Platform Within the Rapidly Expanding Plant-Based Natural Foods Industry

Over the near and intermediate term, Laird Superfood is highly focused on maximizing revenue growth by further penetrating the multi-billion-dollar market opportunity presented by our current product lines. However, we believe the larger long-term opportunity lies in building Laird Superfood into a unique platform within the natural foods industry, which is currently dominated by single-product companies. The core tenets of this platform approach are strengthening our authentic and trusted brand name, growing our expansive omnichannel distribution strategy and the introduction of a constant flow of new products that align with our core ethos. This platform provides opportunities for continual expansion of our TAM to allow long-duration growth, sustained differentiation of our brand, product diversification and leveraging our core strengths and operating costs to increase profit margins.

An Authentic and Trusted Brand Name

An authentic and trusted brand is one of the strongest long-term barriers to entry and sources of sustained differentiation in the consumer products industry. Since inception, Laird Superfood has invested heavily in building a trusted brand that consumers immediately identify as authentic, plant-based, nutrient dense and functional. Along with more traditional methods of brand-building, we have effectively harnessed the authentic lifestyle of Mr. Hamilton and Ms. Reece, both of whom have well-earned reputations for being on the cutting edge of fitness and nutrition. Our goal is to make Laird Superfood the choice for customers searching for nutrient dense, functional foods at a reasonable price. Our target market extends well beyond elite athletes into the mass market due to our recognition that Laird Superfood products must not only be natural, functional and nutrient-dense, they must also taste great and be affordable to provide access to all consumers.

Balanced and Highly Differentiated Omnichannel Distribution Strategy

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

Our online business is two pronged and consists of Lairdsuperfood.com and Amazon.com. In 2019 and the first six months of 2020, the online business made up 58.4% and 57.1% of our net sales, respectively. Lairdsuperfood.com is a platform that provides an authentic brand experience for our customers that drives engagement and provides feedback for future product development, while generating highly attractive margins. We view our growing proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our 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 approximately two-thirds of Lairdsuperfood.com sales during the first six months of 2020. This direct relationship also allows us to market and cross-sell new products more efficiently, which should lead to higher customer lifetime values. Finally, Lairdsuperfood.com serves as the cornerstone of our subscription business which has



 

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shown consistent revenue growth since its inception in May 2017 and has increased its individual subscriber base at a compound annual growth rate of 297% through June 2020.

Our wholesale business addresses the $695 billion grocery industry, specifically the $152 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. In 2019 and the first six months of 2020, wholesale made up 40.4% and 41.0% of our net sales, respectively. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. We currently estimate our products are in over 5,500 retail door locations across the United States 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 TAM than would be considered normal for a food brand that is singularly focused on the grocery market. We have invested in a national sales team, as well as an internal salesforce and customer service team.

Our food service business addresses a broad set of customers including, but not limited to, local and regional coffee shops, juice bars, corporate offices, hotels, restaurants, college campuses, professional sports teams and gyms. In 2019 and the first six months of 2020, food service was 1.2% and 1.9% of our net sales, respectively. Though currently a small percentage of net sales, we believe the market opportunity for our food service business is very large, providing us with the ability to further diversify our customer base and increase our TAM. To strongly differentiate our food service offerings, Laird Superfood has worked with Bunn, one of the largest coffee capital equipment manufacturers in the United States, to create the Laird Superfood Crescendo®, a plant-based latte machine that is a convenient solution for a variety of office, gym, restaurant, and other food service environments. The average cash-on-cash pay-back period for food service customers that purchase a Crescendo® for retail use with our products is less than twelve months. Since the Laird Superfood Crescendo® was debuted in March 2019, we have built an installed base of 34 units as of June 30, 2020.

Proven Efficiency in Marketing Spend to Drive Growth and Acquire New Customers

Throughout our history, Laird Superfood has maintained a disciplined, data-driven and returns-based focus on the deployment of marketing dollars to build our brand and acquire new customers. In our view, marketing dollars must be deployed efficiently to sustain growth over the long-term and eventually move Laird Superfood towards profitability. We have placed a strong focus on generating free and organic traffic for our website and social media channels, expanding our proprietary database of customers, growing subscriptions and acquiring customers from a wide variety of channels. These efforts are aimed at structurally reducing our dependence on the least proprietary and most competitive sources of online customer acquisition. As a result, Laird Superfood has historically acquired new customers at an attractive cost relative to their projected lifetime value. Our three-year cash Lifetime Value to Customer Acquisition Cost (“LTV/CAC”) ratio for new online customers was 3.5x as of June 30, 2020.

We expect to remain disciplined in our customer acquisition efforts going forward and have plans to significantly expand the number of channels through which we will attempt to find additional sources of low-cost customer acquisition opportunities.

Vertically Integrated Business Model

Since inception, Laird Superfood has focused on building a vertically integrated business model. The core of this strategy is our highly efficient manufacturing process, which enables rapid expansion



 

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of production capacity, provides fixed-cost leverage on increased volumes and optimizes our ability to control quality.

We produce our powdered creamers and hydration products on automated equipment. At this stage of revenue contribution, we have elected to co-pack our liquid creamers and beverage enhancing supplements. In addition, we externally source our whole bean and ground coffee. We produce 17 of our 26 SKUs in house as of June 30, 2020, with only nine SKUs consistently co-packed. When we refer to “SKUs” in this prospectus, we are referring to flavor count. If a flavor is available in more than one size, we are referring to all sizes collectively as one SKU. Based on our current projections, we believe our existing footprint, upon installation of manufacturing equipment which is anticipated to be materially paid for in the third quarter of 2020, will support $100 million in annual gross sales of internally produced powdered products without a need for a material increase in capital expenditures. This provides us with substantial current excess manufacturing capacity to enable future growth in a capital efficient manner.

In addition to manufacturing capabilities, we have internalized branding, design, packaging, digital marketing, customer service and data analytic capabilities, along with finance, legal, research and development and human resource functions. Our broad in-house capabilities and extensive manufacturing capacity are expected to enable significant fixed-cost leverage going forward in manufacturing, as well as most other operating expense line items.

Targeting Top-Tier Food Industry Gross Margins

Strong gross margins provide Laird Superfood with a sustainable competitive advantage, as these gross profit dollars can be used to aggressively invest in growth initiatives to further differentiate our brand, expand our revenue opportunity and increasingly cover fixed costs as we move toward profitability. Laird Superfood has demonstrated gross margin expansion throughout most of our history as we have leveraged our manufacturing infrastructure over higher volumes. Our vertically integrated model is expected to enable gross margins to continue to move toward levels above food industry averages, as production volumes increase.

Investor Relationship with Danone Manifesto Ventures

In April 2020, Danone Manifesto Ventures, PBC invested $10 million in Laird Superfood. Danone Manifesto Ventures is the investment arm of Danone S.A., one of the largest and most successful consumer product companies in the world and a global leader in plant-based products with which we share a vision of a healthy and sustainable future of food. We believe Danone Manifesto Ventures will provide Laird Superfood with valuable CPG guidance, best practices and industry-specific expertise to help us capitalize on our growth opportunity. We believe this investor relationship is an important strategic fit for Laird Superfood, as it allows us to maintain our independence, agility, entrepreneurial spirit and mission, while benefiting from the manufacturing, marketing and operational experience of a world-class organization.

Focus on Environmental, Social and Governance (ESG) Best Practices

Laird Superfood’s founders strongly believe we should seek to drive value for all relevant stakeholders, including customers, employees, community, shareholders and the broader environment. This philosophy of “Ohana” is particularly important to Mr. Hamilton and Ms. Reece and permeates our culture. Laird Superfood is conscientious in its sourcing of raw materials, the carbon-benefits of facilitating plant-based alternatives, the impact of our operations on the environment and our community, and providing products that discourage the culture of single-use plastics.



 

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Our Growth Strategy

We believe there is great opportunity to leverage the strength of our existing products and build Laird Superfood into one of the world’s preeminent natural food brands. Consumers are increasingly incorporating natural alternatives into their diet. However, there are limited national natural food brands with the name recognition of legacy brands in traditional center-of-the-store grocery aisles. Laird Superfood is seeking to build a high level of brand recognition, as well as develop a trust and understanding with consumers that, regardless of category, any product labeled Laird Superfood will taste great and maintain a high-quality ingredient set. That is the heart of our platform strategy. Our primary growth strategies are as follows:

Open-Ended and Long Duration Growth Opportunity in the Enormous Grocery Market

At $695 billion, the U.S. grocery market is one of the largest retail end-markets in the world. Laird Superfood’s strategy is to maximize penetration of this opportunity through a variety of avenues, including growing brand trust and recognition, significantly expanding our grocery distribution footprint to multiples of our current level of 5,500 doors, driving shelf velocity through an acceleration of online and offline advertising and introducing new products to expand our store footprint. According to SPINS, as of June 30, 2020, we have achieved an All Commodity Volume (ACV) of 48.18% in the natural enhanced retailer channel, up from 19.87% as of June 30, 2019. In the conventional grocery channel, we estimate we have achieved less than 10% of ACV.

Exposure to Plant-Based, Functional and Natural Foods Portions of the Grocery Market

Within the grocery category, there is an ongoing secular shift from highly processed legacy brands that demonstrate little nutritional benefit to natural, nutrient-dense, functional and plant-based alternatives. We expect the shift in consumer tastes driving the growth of natural and plant-based alternatives will continue throughout the foreseeable future as consumers become better educated on nutrition and focus on the health and wellness of themselves, their families and the environment. There is also clear evidence that an increasing number of natural and plant-based products in stores are moving beyond the natural and specialty segments and into conventional grocery stores. The continuation of these trends should benefit Laird Superfood as it seeks to penetrate the very large overall grocery market.

Business Model Characterized by Repeat and Recurring Revenues

Because the consumption of coffee, creamers and hydration products is a daily ritual for many consumers, there is a natural and frequent repeat usage of Laird Superfood products among large portions of our customer base. For this reason, Laird Superfood has always enjoyed a meaningful base of recurring revenues due to repeat orders by its consumers and wholesale partners. Growing this base of recurring revenues is a strong focus of Laird Superfood as it evaluates new product development opportunities, acquisitions and marketing strategies.

In 2019 and the first six months of 2020, subscriptions and repeat customers made up 65% and 61% of Lairdsuperfood.com net sales, respectively, even while aggressively growing new customers during these periods. We have also grown subscriptions on Lairdsuperfood.com at a compound annual growth rate of 297% from inception through June 30, 2020. Further, we view our wholesale business as highly recurring due to the high retention rate of our largest wholesale customers who remain pleased with the strong sell through of our products. The recurring nature of our revenues provides us with confidence in the sustainability of growth over a long period of time. Not only do



 

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recurring revenues provide a cushion during downturns, but they make it much easier to achieve sustained and rapid revenue growth due to an ever-growing underlying base of sales.

Resiliency of Recurring Revenues and Business Model During the COVID-19 Pandemic

Though Laird Superfood’s revenues have proven to be highly recurring since our inception, there was some concern our products would be viewed as premium and more discretionary by consumers during an economic downturn. However, the quarter ended June 30, 2020 resulted in the highest revenue in the history of Laird Superfood, evidencing the resiliency of our brand in times of economic uncertainty. Early indications suggest consumers continued to drink our coffee, use our creamers and put an even greater emphasis on their own food and supplement choices during the COVID-19 pandemic. If there was a trade-down effect, it appears consumers may have increased their at-home consumption relative to purchases at traditional coffee shops. On a per-serving basis, a home-brewed cup of coffee using Laird Superfood creamer is substantially less expensive than a premium blend at most coffee shops. The performance of Laird Superfood during this extremely difficult period provides us with even greater confidence in the recurring nature of our business, the efficacy of our omnichannel sales model, and the elasticity of our vertically integrated capabilities when facing spiking demand, even during otherwise challenging conditions. Management continues to monitor the evolving situation, and Laird Superfood intends to follow the advice of public health authorities and adhere to government regulations with respect to COVID-19 as they develop, which may result in reduced hours at or closure of our production facility.

Continued Expansion of Distribution Footprint

Based on our estimate of what wholesale penetration for a leading CPG brand should be at maturity, we believe Laird Superfood’s wholesale distribution footprint should eventually be multiples of its current size. Currently, our products are marketed and sold through a diverse set of physical retail and online channels, including grocery chains, club stores, specialty and natural food outlets, coffee shops, juice bars, gyms, restaurants, hospitality venues, corporate workplaces, Lairdsuperfood.com and Amazon.com. Maximizing potential distribution will be a key growth driver for Laird Superfood and our goal is to expand distribution so that our products are available wherever our customers choose to shop, whether it be a retail store, food service environment or directly online. While expanding distribution, we are simultaneously increasing our brand awareness through an extensive program of online and offline marketing initiatives to accelerate the sell-through velocity of our products once they reach the shelves of our wholesale partners.

Maximize Market Penetration of Existing Product Lines

Laird Superfood’s existing creamer, hydration and beverage enhancing supplement, and instant and roasted coffee categories represent a multi-billion-dollar TAM. We believe simply penetrating these core markets with our differentiated product lines provides Laird Superfood with a large and long-duration growth opportunity. In the near-term, Laird Superfood will focus on growing share within these categories. This is particularly true within the coffee creamer market, where plant-based products are driving category growth and Laird Superfood Creamer products are exhibiting very strong performance. We will continue to drive growth of our Superfood Creamers through distribution expansion and increased marketing and advertising to drive brand recognition and shelf velocity. We will also attempt to leverage our new and existing wholesale relationships to gain additional shelf space for our full suite of existing products.

New Product Development

While Laird Superfood’s current product lines are growing strongly and address multi-billion-dollar market opportunities with differentiated products, we intend to enhance our growth by



 

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launching new products over time, including planned launches in 2020. In the first and second quarters of 2020, we launched three flavors of our liquid Superfood Creamer and our ground coffee with functional mushrooms product. In the third quarter of 2020, we launched an additional flavor of our liquid Superfood Creamer, and we expect to launch an immune supplement beverage mix, a plant-based protein powder, a powdered greens beverage mix, and a packaged pili nuts snack product before the end of 2020. These new products have been, and future products will be, developed primarily through internal research and development. We are focused on creating products that conform to our uncompromising brand ethos of great taste, high-quality ingredients, nutritional density and functionality. Additional criteria for new product development include the potential for broad commercial acceptance, size of market opportunity, regulatory compliance issues, manufacturing process, availability and cost of raw materials, shelf-life and expected usage patterns by potential customers.

Opportunity for Tuck-In Acquisitions to Supplement Organic Growth and Expand Platform

To date, Laird Superfood’s revenues have been driven solely by organic growth and that will remain our primary focus going forward. However, longer-term, we believe there will be opportunities to expand our TAM and diversify our revenue base through acquisitions. In this scenario, our belief is acquisitions would be of a tuck-in nature and target highly fragmented markets within plant-based foods. All products acquired are expected to be re-branded Laird Superfood and would fit our ethos of great taste, nutrition, all-natural ingredients and functional benefits.

Expected Increases in Gross Margins, Fixed-Cost Leverage and a Capital Efficient Sales and Marketing Strategy Should Allow Earnings to Grow Faster than Sales, Providing a Path to Profitability

While generating topline growth is of primary importance to Laird Superfood, we are also highly focused on growing earnings faster than net sales and achieving profitability within a reasonable period. Multiple aspects of Laird Superfood’s business lead us to believe there is substantial operating leverage that should allow us to achieve profitability. First, our gross margins should expand due to the efficient nature of manufacturing our powdered products, excess capacity in our manufacturing facilities and the ability to leverage fixed costs in our factory over higher volumes. Second, we believe that outside of incremental new expenses associated with being a public company, general and administrative expenses should grow slower than net sales. Finally, we do have modest fixed-cost leverage on our sales and marketing spend, along with a history of disciplined and efficient customer acquisition strategies. Laird Superfood remains committed to a business model focused on not just topline growth, but on steady progress toward profitability.

Our Products

Our authentic and sustainably differentiated plant-based products become part of our customer’s “Daily Ritual”, providing energy and hydration throughout the day, presenting the opportunity to expand a portfolio of plant-based products. As part of our focus on sustainability and a better-for-you “Daily Ritual”, the product categories we have focused on to date are powdered and liquid coffee creamers, hydration and beverage enhancing supplements, and coffee, tea and hot chocolate products.



 

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Our gross sales by product category are reflected below:

 

    Six months ended June 30,     Years ended December 31,  
    2020     2019     2018  
                $                 % of
    Total    
    $     % of
    Total    
    $     % of
    Total    
 

Coffee Creamers

  $ 8,017,868       66.6   $ 9,330,678       67.8   $ 5,611,857       68.9

Hydration and Beverage Enhancing Supplements

    1,849,298       15.3     2,022,269       14.7     956,967       11.7

Coffee, Tea, and Hot Chocolate Products

    1,979,141       16.4     1,930,434       14.0     1,347,297       16.5

Other

    200,262       1.7     471,097       3.4     233,024       2.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Sales

  $ 12,046,569       100.0   $ 13,754,478       100.0   $ 8,149,145       100.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Powdered and Liquid Coffee Creamers

Laird Superfood is disrupting the three-billion-dollar coffee creamer market with its cornerstone portfolio of Superfood Creamers. According to IRI, the coffee creamer category grew 6.0% in 2019, while Laird Superfood’s creamer business grew 66.3% in 2019. Coffee creamers represented 67.8% of our gross sales in 2019 and 66.6% of our gross sales in the first six months of 2020. The three main benefits and points of differentiation to consumers from our Superfood Creamer products are their taste, limited ingredient set, and their inclusion of plant-based fats.

Hydration and Beverage Enhancing Supplements

Laird Superfood’s hydration/beverage enhancer portfolio includes our Hydrate coconut water products, our Activate Daily Jumpstart product, as well as our Performance Mushrooms supplement. These products represented 14.7% of our gross sales in 2019 and 15.3% of our gross sales in the first six months of 2020. The main benefits and points of differentiation to consumers from our Hydrate products are great taste; a limited number of ingredients that provides desired hydration enhancers, such as electrolytes and potassium, and additional attractive trace minerals from Aquamin; no artificial sugars, ingredients or colors that are prevalent in most competing sports drinks; the ability for customers to adjust serving size based on individual taste preference; and a lower-cost per serving than traditional single-use packaged sports drinks and coconut waters.

Coffee, Tea, and Hot Chocolate Products

Laird Superfood sells high quality instant beverage products, pre-mixed with its superfood creamer, in a just-add-hot-water line of Hot Chocolate with functional mushrooms and Instafuel products, which include coffee and tea options. Additionally, Laird Superfood offers whole and ground roast coffee products. These products represented 14.0% of our gross sales in 2019 and 16.4% of our gross sales in the first six months of 2020. Although not historically a focus for Laird Superfood, whole and ground roast coffees offer an intuitive and complementary sale to individuals purchasing our creamers and we believe our new organic coffee blended with functional mushrooms will serve as a category disruptor and a point of differentiation in an otherwise stale segment.

Our Customer Usage Patterns

Today, all Laird Superfood products are focused on providing nutrient dense and functional alternatives in multi-billion-dollar market categories, such as coffee creamers and sports drinks. Laird Superfood products are also designed to become part of an individual’s daily ritual, which drives repeat usage, provides a base of recurring revenues and grows customer lifetime value.



 

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During the six months ended June 30, 2020, repeat users represented 30% of our total orders on our direct website. This occurred even as we sought to expand our new customer base as fast as reasonably possible. Furthermore, during the six months ended June 30, 2020, 31% of our net sales on our direct website came from our subscription program. These dynamics create meaningful recurring revenues. We believe this combination of repeat usage, order frequency and retention rates provide us with attractive returns on marketing spend and customer unit economics.

When combining our Lairdsuperfood.com and Amazon.com online channels, we achieved a three-year cash LTV/CAC ratio of 4.1x in 2018, 3.7x in 2019 and 3.5x in the first six months of 2020. Our three-year cash LTV is calculated as the net cash contribution for online customers acquired at least three years ago divided by the number of new online customers acquired during that period. Net cash contribution is inclusive of online net sales, less online related raw materials, packaging, shipping, freight and Amazon.com selling fees. CAC is estimated as the amount spent in the respective calendar year to acquire new online customers, divided by the number of new online customers acquired during the same period. CAC is inclusive of advertising, marketing, and payroll costs specific to online acquisition channels.

Since inception, we have witnessed strong retention rates in our online business and have active customers across every single monthly cohort in our Lairdsuperfood.com business going back to November 2015. A defining characteristic of our users is that over time their retention rates rise. From inception through June 2020, 30.9% of the consumers that try our products order a second time. Once customers are on their fifth order, our average retention rate is 75.5% and by their tenth order our average retention rate is 86.9%. The customers exhibiting these order patterns become our “power users” and they drive the recurring revenue nature of our portfolio of products.

Subscriptions also play an important role in driving retention rates for our direct online business and in 2019 and the first six months of 2020 subscriptions made up 32% and 31% of our direct online net sales, respectively. Since the start of our subscription program in May 2017 we have grown our subscriber base at a compound annual growth rate of 297% through June 2020. In addition to subscriptions, Lairdsuperfood.com has a high percentage of repeat users. In 2019 and the first six months of 2020, 65% and 61% of the net sales at Lairdsuperfood.com came from either subscribers or repeat users, respectively. This high percentage of repeat orders comes even as we have been rapidly growing our new customer base.

Concurrent Private Placement

Danone Manifesto Ventures, PBC, or DMV, an existing shareholder, has agreed to purchase $2,000,020 of our common stock in a private placement immediately subsequent to, and contingent upon, the consummation of this offering, at a price per share equal to the purchase price to the public in this offering. We refer to this transaction as the “concurrent private placement.” The closing of this offering is not conditioned upon the closing of the concurrent private placement.

The sale of shares in the concurrent private placement will not be registered under the Securities Act of 1933, as amended. DMV will be subject to a lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus. See “Certain Relationships and Related Party Transactions—Related Party Transactions—Stockholder Agreement and Warrant” and “—Amended and Restated Investors’ Rights Agreement” and “Shares Eligible for Future Sale—Lock-up Arrangements.”



 

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Selected Risks Affecting Our Business

Our business is subject to numerous risks and uncertainties that you should be aware of before making an investment decision, including those highlighted in the “Risk Factors” section immediately following this prospectus summary. These risks include, but are not limited to, the following:

 

   

we have a limited operating history and there is no assurance of profitability;

 

   

we may not be able to successfully implement our growth strategy on a timely basis or at all, and much of our strategy relies on third parties, such as distribution partners;

 

   

our product categories face a high level of competition, which could negatively impact our sales and results of operations;

 

   

our exposure to the risk of food regulation, safety and quality issues, and associated regulatory and legal action from consumers, third-parties, or regulators;

 

   

our exposure to fluctuations in availability of raw materials and other inputs, and increased costs for our raw materials and other inputs;

 

   

we rely on key management personnel and the reputation of our founders for the success of our business;

 

   

our continued success depends on our ability to successfully innovate on a cost-effective basis; and

 

   

erosion of the reputation of one or more of our leading products could negatively impact our sales and results of operations.

If we are unable to adequately address these and other risks we face, our business, financial condition, results of operations and prospects may be adversely affected.

Conflicts of Interest

Our success depends on key individuals whose continued service is not guaranteed, and the loss of one or more of such individuals could adversely affect our ability to manage our business and implement our growth strategies.

We depend on our management and on our co-founders Mr. Hamilton and Mr. Hodge. Both Mr. Hamilton and Mr. Hodge are key creative forces in the development of our current and future products. Mr. Hamilton is also the namesake of the Company, and our brand authenticity is enhanced by the active involvement of Mr. Hamilton and Ms. Reece, who are widely known for their long-standing commitment to health, nutrition, fitness and positivity. The loss of the services of any of these persons, particularly Mr. Hamilton or Mr. Hodge, could adversely affect our business, diminish our expansion opportunities, and weaken our relationships with business partners and customers.

Mr. Hamilton and Ms. Reece are actively involved in other business investment activities that are independent from, and potentially conflict with, those of the Company. These conflicts of interest may divert their time and attention away from the Company. In addition, we have only entered into limited noncompetition or nonsolicitation agreements with certain senior employees which makes us vulnerable to competition from insiders. These conflicts of interest may result in the loss of business opportunities and take attention away from the Company, which may materially and adversely impact our prospects, business advantage, financial condition and results of operations.



 

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Two-for-One Stock Split

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 prospectus 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.

Corporate Information

We were formed as a limited liability company on June 25, 2015 under the laws of the State of Oregon, converted to a corporation under the laws of the State of Oregon on February 18, 2016, and converted to a corporation under the laws of the State of Delaware on July 3, 2018. Our principal executive offices are located at 275 W. Lundgren Mill Drive, Sisters, Oregon 97759. Our main phone number is 888-670-6796. Our website is www.lairdsuperfood.com. Our fiscal year ends on December 31. We have included our website address in this prospectus as an inactive textual reference only. Information contained on, or that can be accessed through, our website is not part of this prospectus. You should not rely on any information contained or included on our website in making your decision whether to purchase our common stock.

Implications of Being an Emerging Growth Company

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 the Company’s executive compensation arrangements; and

 

   

no non-binding advisory votes on executive compensation or golden parachute arrangements.

In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

We may take advantage of these provisions until the end of the fiscal year in which the fifth anniversary of this offering 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.



 

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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.



 

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THE OFFERING

 

Issuer

Laird Superfood, Inc.

 

Common stock offered by us

2,650,000 shares

 

Over-allotment option

We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 397,500 additional shares of our common stock at the initial public offering price (less underwriting discounts and commissions) to cover over-allotments, if any.

 

Common stock to be outstanding after this offering

8,375,970 shares (or 8,773,470 shares if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full).

 

Use of proceeds

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $52.7 million (or approximately $60.9 million if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use net proceeds from this offering for working capital and general corporate purposes, including operating expenses and capital expenditures. Additionally, we may use a portion of the net proceeds from this offering to acquire businesses or products. However, we do not have agreements or commitments for any material acquisitions at this time. See “Use of Proceeds.”

 

Concurrent Private Placement

DMV has agreed to purchase $2,000,020 of our common stock in a private placement immediately subsequent to, and contingent upon, the consummation of this offering, at a price per share equal to the purchase price to the public in this offering. We refer to this transaction as the “concurrent private placement.” The closing of this offering is not conditioned upon the closing of the concurrent private placement. Including the 90,910 shares to be sold to DMV in the concurrent private placement, 8,466,880 shares (or 8,864,380 shares if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full) of our common stock will be outstanding after this offering and the concurrent private placement.

 

 

The sale of shares in the concurrent private placement will not be registered under the Securities Act of 1933, as amended.



 

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DMV will be subject to a lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus. See “Certain Relationships and Related Party Transactions—Related Party Transactions—Stockholder Agreement and Warrant” and “—Amended and Restated Investors’ Rights Agreement” and “Shares Eligible for Future Sale—Lock-up Arrangements.”

 

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Listing

The common stock will be listed on the NYSE American.

 

Symbol

“LSF”.

The number of shares of our common stock to be outstanding after this offering is based on 4,330,500 shares of our common stock outstanding as of June 30, 2020, and includes an aggregate of 1,395,470 shares of common stock issuable upon conversion of our outstanding convertible preferred stock as of June 30, 2020, and excludes the following:

 

   

514,756 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2020, at a weighted-average exercise price of $6.86 per share;

 

   

90,910 shares to be issued to DMV in the concurrent private placement at a price per share equal to the purchase price to the public in this offering, for a total purchase price of $2,000,020, as more fully described in “Certain Relationships and Related Party Transactions – Related Party Transactions – Stockholder Agreement and Warrant”;

 

   

1,000,000 shares of common stock reserved for issuance under our 2020 Omnibus Incentive Plan, as more fully described in “Executive Compensation – Laird Superfood, Inc. 2020 Omnibus Incentive Plan”; and

 

   

200,000 shares of common stock reserved for issuance under our 2020 Employee Stock Purchase Plan, as more fully described in “Executive Compensation – Laird Superfood, Inc. 2020 Employee Stock Purchase Plan.”

Except as otherwise indicated, all information in this prospectus assumes:

 

   

a two-for-one split of our common stock, and the corresponding adjustment of the conversion prices of our convertible preferred stock, which was effected on August 19, 2020;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the closing of this offering;

 

   

the conversion upon the closing of this offering of all outstanding shares of convertible preferred stock into an aggregate of 1,395,470 shares of common stock, as described above;

 

   

no exercise or termination of outstanding stock options after June 30, 2020; and

 

   

no exercise by the underwriters of their option to purchase up to an additional 397,500 shares of our common stock from us in this offering to cover over-allotments, if any.



 

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SUMMARY FINANCIAL INFORMATION

The following tables present summary financial data for our business. We derived the summary statement of operations data for the years ended December 31, 2019 and 2018 and the balance sheet data as of December 31, 2019 and 2018 from our audited financial statements included elsewhere in this prospectus. The summary statements of operations data for the six months ended June 30, 2020 and 2019 and the balance sheet data as of June 30, 2020 have been derived from our unaudited interim financial statements included elsewhere in this prospectus and are not necessarily indicative of results to be expected for the full year. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of June 30, 2020 and the results of operations for the six months ended June 30, 2020 and 2019. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information in the sections of this prospectus titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

        Six Months Ended June 30               Years Ended December 31,  
           2020            2019            2019            2018  
        (unaudited)                             

Statement of Operations Data:

                

Sales, net

    $ 11,092,055       $ 5,445,307        $ 13,103,728       $ 8,291,082  

Cost of goods sold

      (7,650,736       (3,269,325        (8,019,094       (5,628,122
   

 

 

     

 

 

      

 

 

     

 

 

 

Gross profit

      3,441,319         2,175,982         
5,084,634
 
      2,662,960  

Gross margin

      31.03%         39.96%          38.80%         32.12%  

Operating expenses:

                

General and administrative

      3,432,012         2,333,499          5,201,184         5,826,035  

Research and product development

      261,111         76,435          324,284         119,487  

Sales and marketing

      4,788,517         3,880,220          8,311,137         5,146,934  
   

 

 

     

 

 

      

 

 

     

 

 

 

Total operating expenses

      8,481,640         6,290,154          13,836,605         11,092,456  
   

 

 

     

 

 

      

 

 

     

 

 

 

Operating loss

      (5,040,321       (4,114,172        (8,751,971       (8,429,496

Other income (expense)

      38,701         142,729          248,023         (29,940
   

 

 

     

 

 

      

 

 

     

 

 

 

Net loss

      (5,001,620       (3,971,443        (8,503,948       (8,459,436

Deemed contribution from the redemption of preferred stock

      -           -            7,448,879         -    

Less deemed dividend of beneficial conversion feature

      (825,366       -            -           (749,998

Less deemed dividend on warrant discount

      (179,427       -            -           -    
   

 

 

     

 

 

      

 

 

     

 

 

 

Net loss attributable to Laird Superfood, Inc. common stockholders

    $ (6,006,413     $ (3,971,443      $ (1,055,069     $ (9,209,434
   

 

 

     

 

 

      

 

 

     

 

 

 

Net loss per share attributable to Laird Superfood, Inc common stockholders:(1)

    $ (1.40     $ (1.13      $ (0.29     $ (2.60

Weighted-average shares of common stock outstanding used in computing net loss per share of common stock(2)

      4,303,305         3,514,705          3,668,050         3,541,563  

Basic and diluted pro forma net loss per share to common stockholders (unaudited):(3)

    $ (1.14          $ (0.20    

Weighted-average shares of common stock outstanding used in computing pro forma net loss per share of common stock (unaudited):

      5,261,155              5,371,897      


 

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(1)

All share, per share and related information has been retroactively adjusted, where applicable, to reflect the impact of the two-for-one split of our common stock, which was effected on August 19, 2020.

(2)

See statements of operations, Note 12 in the audited financial statements, and Note 13 in the unaudited interim financial statements for the six months ended June 30, 2020 included elsewhere in this prospectus for further details on the calculation of net loss per share.

(3)

See Note 1 in the audited financial statements and Note 1 in the unaudited interim financial statements for the six months ended June 30, 2020 included elsewhere in this prospectus for further details on the calculation of basic and diluted pro forma net loss per share.

The table below presents our balance sheet data as of June 30, 2020:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to: (i) the conversion of all shares of our outstanding convertible preferred stock as of June 30, 2020 into an aggregate of 1,395,470 shares of common stock immediately prior to the consummation of this offering; and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur, in each case, immediately prior to the consummation of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to the sale of 2,650,000 shares of common stock in this offering at the initial public offering price of $22.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     As of June 30, 2020  
     Actual     Pro-Forma     Adjusted
Pro-Forma
 
     (unaudited)  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 8,549,176     $ 8,549,176     $ 61,268,176  

Working capital(1)

     15,985,713       15,985,713       68,704,713  

Property and equipment, net

     2,761,713       2,761,713       2,761,713  

Total assets

     24,678,717       24,678,717       77,397,717  

Total liabilities

     2,459,497       2,459,497       2,459,497  

Total convertible preferred stock

     15,929,297       -         -    

Total stockholders’ equity

     6,289,923       22,219,220       74,938,220  

 

(1)

The Company defines working capital as current assets less current liabilities.



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, before making a decision to invest in our common stock. Our business, results of operations, financial condition or prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of the risks actually occur, our business, results of operations, financial condition and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your investment.

Risks Relating to Our Limited Operating History, Financial Position and Capital Needs

We are an early stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

We are an early stage company. We were formed and commenced operations in June 2015. We face all the risks faced by newer companies, including significant competition from existing and emerging competitors, many of which are established and have access to capital. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from an early stage company to a company capable of supporting larger scale commercial activities. If we are not successful in such a transition, our business, results and financial condition will be harmed.

We have not been profitable to date and we expect operating losses for the near future. During the years ended December 31, 2018 and 2019, we achieved net sales of approximately $8.3 million and $13.1 million, respectively, and incurred net losses of approximately $8.5 million and $8.5 million, respectively. During the six months ended June 30, 2020, we achieved net sales of approximately $11.1 million and incurred net losses of approximately $5.0 million. Furthermore, to the extent our business strategy is successful, we must control overhead expenses and we may need to incur the expense of additional reliance on outside co-packers or hire additional personnel as needed. We may not succeed in expanding our customer base and product offerings and even if we do, may never generate revenue that is significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress our value and could impair our ability to raise capital, expand our business, diversify our product offerings or even continue our operations.

Even if this offering is successful, we may need additional funding in order to grow our business.

To date, we have financed our operations through private placements of our common and preferred stock and borrowings under our Loan Agreement, dated August 10, 2017, by and between us and East Asset Management, LLC, our revolving line of credit agreement, originally dated February 5, 2019 and subsequently renewed February 26, 2020, by and between us and First Interstate Bank, and from forgivable loans from the City of Sisters, Oregon and Deschutes County, Oregon, dated May 30, 2017 and April 11, 2018, respectively. We have devoted substantially all our financial resources and efforts to developing our products, workforce, and manufacturing capabilities. Our long-term growth and success are dependent upon our ability to generate cash from operating activities. There is no assurance that we will be able to generate sufficient cash from operations or access the capital we need to grow our business. Our inability to obtain additional capital could have a

 

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material adverse effect on our ability to fully implement our business plan as described herein and grow our business, to a greater extent than we can with our existing financial resources.

We may need to raise additional capital to fund our existing commercial operations and develop and commercialize new products and expand our operations.

Based on our current business plan, we believe the net proceeds from the offering, together with our current cash and cash equivalents and cash receipts from sales will enable us to conduct our planned operations through at least the end of 2022. If our available cash balances, net proceeds from the offering and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements including because of lower demand for our products or due to other risks described herein, we may seek to sell common stock or preferred stock or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:

 

   

increase our sales and marketing efforts and address competitive developments;

 

   

provide for supply and inventory costs;

 

   

fund development and marketing efforts of any future products or additional features to then-current products;

 

   

acquire, license or invest in new technologies;

 

   

acquire or invest in complementary businesses or assets; and

 

   

finance capital expenditures and general and administrative expenses.

Our present and future funding requirements will depend on many factors, including:

 

   

our ability to achieve revenue growth and improve gross margins;

 

   

the cost of expanding our operations and offerings, including our sales and marketing efforts;

 

   

the effect of competing market developments; and

 

   

costs related to international expansion.

The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our shareholders could result. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights or grant licenses on terms that are not favorable to us.

Our rapid growth may not be indicative of our future growth, and our limited operating history may make it difficult to assess our future viability.

Our net sales grew from approximately $8.3 million in 2018 to approximately $13.1 million in 2019 and $11.1 million in the first six months of 2020. We expect that, in the future, as our revenue increases to higher levels, our revenue growth rate will decline. We also believe that growth of our revenue depends on several factors, including our ability to:

 

   

expand our existing channels of distribution;

 

   

develop additional channels of distribution;

 

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grow our customer base;

 

   

cost-effectively increase online sales at our direct website and third-party marketplaces;

 

   

effectively introduce new products;

 

   

increase awareness of our brand;

 

   

manufacture at a scale that satisfies future demand; and

 

   

effectively source key raw materials.

We may not successfully accomplish any of these objectives. Since our inception in June 2015, we have not yet demonstrated the ability to manage rapid growth over a long period of time or achieve profitability at scale. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or had previously achieved profitability.

We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

Our rapid growth has placed and may continue to place significant demands on our organizational, administrative and operational infrastructure, including manufacturing operations, quality control, technical support and customer service, sales force management and general and financial administration. As we continue to grow, we will need to make significant investments in multiple facets of our company, including in sales, marketing, product development, information technology, equipment, facilities and personnel. We will also need to improve our operational, financial and management controls as well as our reporting systems and procedures.

If we are unable to manage our growth effectively, we may be unable to execute our business plan, which could have a material adverse effect on our business and our results of operations. Managing our planned growth effectively will require us to:

 

   

maintain a low cost of customer acquisition relative to customer lifetime value;

 

   

identify products that will be viewed favorably by customers;

 

   

enhance our facilities and purchase additional equipment at our facility in Sisters, Oregon; and

 

   

successfully hire, train and motivate additional employees, including additional personnel for our technological, sales and marketing efforts.

The expansion of our products and customer base may result in increases in our overhead and selling expenses. Any increase in expenditures in anticipation of future sales that do not materialize would adversely affect our profitability. In addition, if we are unable to effectively manage the growth of our business, the quality of our products may suffer and we may be unable to address competitive challenges, which would adversely affect our overall business, operations and financial condition.

We have previously identified material weaknesses and significant deficiencies in our internal control over financial reporting for our 2016 and 2017 financial years. If we experience additional material weaknesses in the future, we may not be able to accurately or timely report our financial condition or results of operations and investors may lose confidence in our financial reports and the market price of our common stock could be adversely affected.

Prior to the completion of this offering, we have been a private company with limited accounting personnel and other resources to address our internal control over financial reporting. In preparation

 

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of our financial statements in prior years, we determined that material weaknesses and significant deficiencies in our internal control over financial reporting existed during each of the years ended December 31, 2016 and 2017. These material weaknesses and significant deficiencies concerned shortcomings in our accounting system, lack of established policies and controls over the financial close and reporting process, and lack of resources to evaluate and review appropriate accounting treatment for certain complex areas, such as the treatment of deferred tax assets, unique transactions, and share based compensation. As a result, we made certain immaterial post-closing adjustments to our financial statements and implemented changes to our internal controls and policies. We have not identified further material weaknesses since 2017.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our second annual report following this offering, which will be for our fiscal year ending December 31, 2021, provide a management report on internal control over financial reporting. The Sarbanes-Oxley Act also requires that our internal control over financial reporting be audited by our independent registered public accounting firm, to the extent we are no longer an “emerging growth company,” as defined by the JOBS Act or a “non-accelerated filer” as described in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We do not expect to have our independent registered public accounting firm audit our internal control over financial reporting for so long as we are an emerging growth company.

We have commenced the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404, and we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. In addition, as our business continues to grow in size and complexity, we are improving our processes and infrastructure to help ensure we can prepare financial reporting and disclosures within the timeline required for a public company. We may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. In addition, prior to completing our internal control assessment under Section 404, we may become aware of and disclose material weaknesses that will require timely remediation. During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.

We cannot assure you that there are not, and will not be material weaknesses in our internal control over financial reporting in the future. Any failure to maintain effective internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or operating results. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the stock exchange on which our securities are listed, the U.S. Securities and Exchange Commission (the “SEC”) or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain these and other effective control systems required of public companies, could also restrict our future access to the capital markets.

 

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Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon the completion of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We must design our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship or arrangement causing us to fail to make a required related party transaction disclosure. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Risks Relating to Our Business

Competition in the food and beverage retail industry, especially Internet-based competition, is strong and presents an ongoing threat to the success of our business.

The food and beverage retail industry is very competitive. In our online and wholesale business, we compete with food and beverage retail stores, supermarkets, warehouse clubs and other mass and general retail and online merchandisers, including Internet retailers, many of which are larger than us and have significantly greater capital resources than we do, selling both competitive products and retailing our own products, competing against our direct online business. We also compete with a number of natural, organic, and functional food and beverage producers.

We face significant competition from these and other retailers and producers. Any changes in their merchandising and operational strategies could negatively affect our sales and profitability. In particular, if natural, organic, and functional food and beverage competitors seek to gain or retain market share by reducing prices, we would likely be forced to reduce our prices on similar product offerings in order to remain competitive, which may result in a decrease in our market share, net sales and profitability and may require a change in our operating strategies.

We have been able to compete successfully by differentiating ourselves from our competitors by providing an expanding selection of natural, organic, and functional products, competitive pricing, convenience and exceptional customer service. If changes in consumer preferences decrease the competitive advantage attributable to these factors, or if we fail to otherwise positively differentiate our product offering or customer experience from our competitors, our business, financial condition, and results of operations could be materially and adversely affected.

Many of our current competitors have, and potential competitors may have, longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technical capabilities, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to derive greater net sales and profits from their existing customer base, acquire customers at lower costs or respond more quickly than we can to new or emerging technologies and changes in consumer preferences or habits. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies (including but not limited to predatory pricing

 

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policies and the provision of substantial discounts), which may allow them to build larger customer bases or generate net sales from those customer bases more effectively than we are able to execute upon.

We expect competition in the natural, organic, and functional food and beverage industry, and in particular Internet-based competition, generally to continue to increase. We believe that our ability to compete successfully in this market depends upon many factors both within and beyond our control, including:

 

   

the size and composition of our customer base;

 

   

the number of products that we feature on our website;

 

   

the quality and responsiveness of customer service;

 

   

our selling and marketing efforts;

 

   

the quality and price of the products that we offer;

 

   

the convenience of the shopping experience that we provide;

 

   

our ability to distribute our products and manage our operations; and

 

   

our reputation and brand strength.

If we fail to compete successfully in this market, our business, financial condition, and results of operations would be materially and adversely affected.

We have less capital and resources than many of our competitors which may give them an advantage in developing and marketing products like ours or make our products less desirable to consumers.

We are involved in a highly competitive industry. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources, and larger client bases than we have (or may be expected to have). Such resources may give our competitors an advantage in developing and marketing products like ours or products that make our products less desirable to consumers. There can be no assurance that we will be able to successfully compete against these competitors.

Given the rapid changes affecting the global, national, and regional economies generally and the natural, organic, and functional food and beverage industry, we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to respond to, among other things, changes in consumer preferences, laws and regulations, market conditions, and competitive pressures. Any failure by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition, operating results, liquidity, cash flow and our operational performance.

Our Laird Superfood products are new, and our industry is rapidly evolving.

Due consideration must be given to our prospects considering the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development, particularly companies in the rapidly evolving natural, organic, and functional food and beverage industry. To be successful we must, among other things:

 

   

Develop, manufacture and introduce new attractive and successful consumer products in our Laird Superfood brand.

 

   

Attract and maintain a large customer base and develop and grow that customer base.

 

   

Increase awareness of our Laird Superfood brand and develop effective marketing strategies to insure consumer loyalty.

 

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Establish and maintain strategic relationships with key sales, marketing, manufacturing and distribution providers.

 

   

Respond to competitive and technological developments.

 

   

Attract, retain and motivate qualified personnel.

We cannot guarantee that we will succeed in achieving our goals, and our failure to do so would have a material adverse effect on our business, prospects, financial condition and operating results.

Some of our Laird Superfood products are new, such as our currently released liquid Superfood Creamers, and are only in early stages of commercialization, and some products that are important to our growth strategy are in various stages of research and development, and have not yet been commercialized. Products in development that have not been commercialized include our immune supplement beverage mix, our plant-based protein powder, our greens beverage mix, and our packaged pili nuts snack product, among others. We are not certain that these, or any other future products, will be developed to commercialization, sell as anticipated, be manufactured as anticipated, or be desirable to their intended markets. Also, some of our products may have limited uses and benefits, which may limit their appeal to consumers and put us at a competitive disadvantage. Developing new products and placing them into wholesale channels and into conventional and natural grocery environments is an expensive and time-consuming process, and if a product fails to sustain market acceptance or is unable to be manufactured as anticipated, the investment made in the product may be lost.

If our current or future Laird Superfood products fail in the development stage, or fail our customer’s expectation of quality, or if we do not achieve or sustain market acceptance, we could lose customers or could be subject to claims which could have a material adverse effect on our business, financial condition and operating results.

As is typical in a rapidly evolving industry, the development process and demand and market acceptance for recently introduced products are subject to a high level of uncertainty and risk. Because the market for our products is new and evolving, it is difficult to predict with any certainty the size of this market and its growth rate, if any, and costs of manufacturing as a product is developed. We cannot guarantee that we will be successful in developing new products or manufacturing new products including through copackers, or that a market for our products will develop or that demand for our products will be sustainable. If we fail to develop or manufacture new products, or the market for new products fails to develop, develops more slowly than expected or becomes saturated with competitors, our business, financial condition and operating results would be materially adversely affected.

We are subject to the risks associated with conducting business operations outside of the U.S., which could adversely affect our business.

We purchase our products from a variety of suppliers, including international suppliers. Our direct purchases from non-US suppliers represented a majority of our raw materials in 2018, 2019 and the first six months of 2020, and we expect our international purchases may grow with time. We also sell our products to consumers through our website and other online distributors that are in foreign countries, and we may in the future enter into agreements with distributors in foreign countries to sell our products. All of these activities are subject to the uncertainties associated with international business operations, including:

 

   

difficulties with foreign and geographically dispersed operations;

 

   

having to comply with various U.S. and international laws;

 

   

changes and uncertainties relating to foreign rules and regulations;

 

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tariffs, export or import restrictions, restrictions on remittances abroad, imposition of duties or taxes that limit our ability to import necessary materials;

 

   

limitations on our ability to enter into cost-effective arrangements with distributors, or at all;

 

   

fluctuations in foreign currency exchange rates;

 

   

imposition of limitations on production, sale or export in foreign countries, including due to pandemic or quarantine;

 

   

imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign processors or joint ventures;

 

   

imposition of differing labor laws and standards;

 

   

economic, political, environmental, health-related or social instability in foreign countries and regions;

 

   

an inability, or reduced ability, to protect our intellectual property;

 

   

availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us;

 

   

difficulties in recruiting and retaining personnel, and managing international operations;

 

   

difficulties in enforcing contracts and legal decisions; and

 

   

less developed infrastructure.

If we expand into other target markets, we cannot assure you that our expansion plans will be realized, or if realized, be successful. We expect each market to have particular regulatory and funding hurdles to overcome and future developments in these markets, including the uncertainty relating to governmental policies and regulations, could harm our business. If we expend significant time and resources on expansion plans that fail or are delayed, our reputation, business and financial condition may be harmed.

In addition, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials or other third parties for the purpose of obtaining or retaining business. While our policies mandate compliance with these anti-bribery laws, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, cash flows and financial condition.

Our results may be negatively affected by changes in foreign currency exchange rates.

Currently, substantially all of our international purchase and sales contracts are denominated in U.S. dollars. As a result, a decrease in the value of the U.S. dollar relative to foreign currencies could increase our costs in dollars for the food products and ingredients that we import from other countries. In addition, an increase in the value of the U.S. dollar relative to foreign currencies could require us to reduce our selling price or risk making our products less competitive in international markets.

A larger portion of our revenues may be denominated in other foreign currencies if we expand our international operations. Conducting business in currencies other than U.S. dollars could subject us to fluctuations in currency exchange rates that could negatively affect our revenues, cost of revenues and operating margins and result in foreign currency translation gains and losses.

The COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition.

In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization

 

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declared COVID-19 a pandemic. The outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines and travel bans, intended to control the spread of the virus. These restrictions, and future prevention and mitigation measures by governments and private entities, are likely to have an adverse impact on global economic conditions and consumer confidence and spending, which could materially adversely affect the supply of materials for our products as well as the demand for our products.

The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, if the pandemic continues to evolve into a severe worldwide health crisis, or in the regions from which we source our raw materials, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows.

In addition, a significant proportion of our products are produced at our manufacturing facility in Sisters, Oregon. If we are forced to scale back hours of production or close this facility in response to the pandemic, we expect our business, financial condition and results of operations would be materially adversely affected.

We may be unable to adequately protect our brand and our other intellectual property rights.

We regard our brand, customer lists, trademarks, domain names, trade secrets and similar intellectual property as critical to our success. We may rely on trademark, copyright and patent law, trade secret protection, agreements and other methods with our employees and others to protect our proprietary rights. We might not be able to obtain broad protection in the United States for all our intellectual property. The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights, and we may be unable to broadly enforce all our trademarks. Any of our patents, trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Our patent and trademark applications may never be granted. To date, the Company has not applied for patent protection on any of its technology. The process of obtaining patent protection is expensive and time-consuming, and we may be unable to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or intellectual property rights. Furthermore, our confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes and may not provide an adequate remedy in the event of unauthorized disclosure of such information.

We might be required to spend significant resources to monitor and protect our intellectual property rights. For example, we may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights or other proprietary rights or to establish the validity of such rights. However, we may be unable to discover or determine the extent of any infringement, misappropriation or other violation of our intellectual property rights and other proprietary rights. Despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to

 

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us and divert the efforts of our technical and management personnel, which may materially and adversely affect our business, financial condition, and results of operations.

In addition, our technology platform may use open source software. The use of such open source software may subject us to certain conditions, including the obligation to offer, distribute, or disclose our technology platform for no or reduced cost, make the proprietary source code subject to open source software licenses available to the public, license our software and systems that use open source software for the purpose of making derivative works, or allow reverse assembly, disassembly, or reverse engineering. We monitor our use of open source software to avoid subjecting our technology platform to conditions we do not intend. However, if our technology platform becomes subject to such unintended conditions, it could have an adverse effect on our business, financial condition, and results of operations.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop the infringement or the misappropriation of our intellectual property rights. The loss of the Laird Superfood brand or logo or other registered or common law trade names or a diminution in the perceived quality of products or services associated with the Company would harm our business. Our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

A food safety or quality issue that results in a product disruption such as a recall, health issue, or death of a consumer could harm our business.

The sale of products for human use and consumption involves the risk of injury or illness to consumers. Such injuries may result from inadvertent mislabeling, tampering by unauthorized third parties or product contamination or spoilage. Under certain circumstances, we may be required to recall or withdraw products, suspend production of our products or cease operations, which may lead to a material adverse effect on our business. For example, in 2019 we recalled certain volumes of our Performance Mushroom supplement due to an overstatement of iron content on the product’s packaging. In addition, customers may stop placing or cancel orders for such products as a result of such events.

Even if a situation does not necessitate a recall or market withdrawal, product liability claims might be asserted against us. While we are subject to governmental inspection and regulations and believe our facilities and those of our co-packers and suppliers comply in all material respects with all

 

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applicable laws and regulations, if the consumption of any of our products causes, or is alleged to have caused, a health-related illness (such as listeria) or death to a consumer, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm could cause consumers to lose confidence in the safety and quality of our products. Moreover, claims or liabilities of this type might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. Although we maintain product liability and product recall insurance in an amount that we believe to be consistent with market practice, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a material adverse effect on our business, financial condition, results of operations or liquidity.

We may be subject to significant liability that is not covered by insurance.

Although we believe that the extent of our insurance coverage is consistent with industry practice, any claim under our insurance policies may be subject to certain exceptions, may not be honored fully, in a timely manner, or at all, and we may not have purchased sufficient insurance to cover all losses incurred. If we were to incur substantial liabilities or if our business operations were interrupted for a substantial period, we could incur costs and suffer losses. Inventory, equipment, and business interruption losses may not be covered by our insurance policies. Additionally, in the future, insurance coverage may not be available to us at commercially acceptable premiums, or at all.

We rely on independent certification for a number of our products.

We rely on independent third-party certification, such as certifications of our products as “organic” or “Non-GMO” (non-genetically modified organisms), to differentiate our products from others. We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified organic. For example, we can lose our “organic” certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In addition, all raw materials must be certified organic. The loss of any independent certifications could adversely affect our market position as an organic and natural products company, which could harm our business.

Our future results of operations may be adversely affected by the availability of Non-GMO and organic ingredients.

Our ability to ensure a continuing supply of Non-GMO and organic ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow organic crops, climate conditions, changes in national and world economic conditions, currency fluctuations and forecasting adequate need of seasonal ingredients.

The organic ingredients that we use in the production of our products (including, among others, coffee, coconut sugar and extra virgin coconut oil) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, water scarcity, temperature extremes, frosts, earthquakes and pestilences. Natural disasters and adverse weather conditions (including the potential effects of climate change) can lower crop yields and reduce crop size and crop quality, which in turn could reduce our supplies of Non-GMO and organic ingredients or increase the prices of Non-GMO and organic ingredients. If our supplies of Non-GMO and organic ingredients are reduced, we may not be able to find enough supplemental supply sources on favorable terms, if at all, which could impact our ability to supply product to our customers and adversely affect our business, financial condition and results of operations.

 

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We also compete with other manufacturers in the procurement of Non-GMO and organic product ingredients, which may be less plentiful in the open market than conventional product ingredients. This competition may increase in the future if consumer demand for Non-GMO and organic products increases. This could cause our expenses to increase or could limit the amount of product that we can manufacture and sell.

Adverse weather conditions, fires, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.

Agricultural products are vulnerable to adverse weather conditions, including severe rains, drought and temperature extremes, floods and windstorms, which are quite common but difficult to predict. Agricultural products also are vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. Unfavorable growing conditions caused by these factors can reduce both crop size and crop quality and, in extreme cases, entire harvests may be lost. Additionally, adverse weather or natural disasters, including fires, earthquakes, winter storms, droughts, or volcanic events, could impact our manufacturing and business facilities in Sisters, Oregon, which could result in significant costs and meaningfully reduce our capacity to fulfill orders and maintain normal business operations. Sisters, Oregon is located in an area subject to seasonal forest fires and fire risk. These factors may result in lower sales volume and increased costs due increased costs of products. Incremental costs, including transportation, may also be incurred if we need to find alternate short-term supplies of products from alternative areas. These factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.

Climate change may negatively affect our business and operations.

There is concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as coconut milk powder, organic coconut sugar, organic extra virgin coconut oil and freeze dried coconut water. As a result of climate change, we may also be subjected to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations, as well as the agricultural businesses of our suppliers, which rely on the availability and quality of water.

Our production equipment may be damaged, adversely affecting our ability to meet consumer and wholesale demand.

A significant proportion of our products are produced at our manufacturing facility in Sisters, Oregon. A significant disruption at that facility or to any of our key production equipment, even on a short-term basis, could impair our ability to timely produce and ship products, which could have a material adverse effect on our business, financial position and results of operations. In the past, we have had manufacturing delays due to damaged and malfunctioning equipment and cannot fully insure against the effects of such delays on our business. Our manufacturing operations are vulnerable to interruption and damage from natural and other types of disasters, including earthquake, fire, floods, volcanic events, draughts, environmental accidents, winter storms, power loss, disease outbreaks or pandemics such as the recent coronavirus (COVID-19) pandemic, communications failures and similar events. If any disaster were to occur at our facility, our ability to operate our business at our facilities would be seriously impaired.

 

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We rely on a small number of suppliers to provide our raw materials, and our supply chain may be interrupted and prevent us from obtaining the necessary materials we need to operate.

We rely on suppliers and vendors to meet our high-quality standards and supply products in a timely and efficient manner. There is, however, no assurance that quality natural and organic products will continue to be available to meet our specific and growing needs. This may be due to, among other reasons, problems with our suppliers’ and vendors’ businesses, finances, labor relations, ability to export materials, product quality issues, costs, production, insurance and reputation, as well as disease outbreaks or pandemics such as the recent coronavirus (COVID-19) pandemic, acts of war, terrorism, natural disasters, fires, earthquakes, flooding or other catastrophic occurrences. If for any reason our suppliers or vendors became unable or unwilling to continue to provide services to us, this would likely lead to a temporary interruption in our ability to import our products until we found another entity that could provide these services. Failure to find a suitable replacement, even on a temporary basis, would have a material adverse effect on our ability to meet our current production targets, make it difficult to grow and would have an adverse effect on our results of operations.

In addition, we depend on a limited number of key suppliers located primarily in the Philippines, Vietnam, India and Indonesia. During 2019, three key suppliers accounted for approximately 65.9% of our total raw material and packaging purchases, and in the first six months of 2020, two key suppliers accounted for approximately 49.9% of our total raw material and packaging purchases. Vietnam, Indonesia and the Philippines geographically accounted for approximately 64.7% of our total raw material and packaging purchases in the first six months of 2020. Vietnam and the Philippines geographically accounted for approximately 51.0% of our total raw material and packaging purchases in 2019. As a result of this concentration in our supply chain, our business and operations would be negatively affected if any of our key suppliers were to experience significant disruption affecting the price, quality, availability or timely delivery of their products. Additionally, our top suppliers are in a similar geographic area, which increases the risk of significant supply disruptions from local and regional events. In the event that our supply from our current suppliers is interrupted, our operations may be interrupted resulting in lost revenue, added costs such as, without limitation, shipping costs, and distribution delays that could harm our business and customer relationships until we are able to identify and enter into an agreement with one or more alternative suppliers.

Our future results of operations may be adversely affected by volatile commodity costs.

Many aspects of our business could be directly affected by volatile commodity costs. Agricultural commodities and raw materials, including coconut milk powder, organic coconut sugar, organic extra virgin coconut oil, freeze dried coconut water and Aquamin, are the principal inputs used in our products. These items are subject to price volatility which can be caused by commodity market fluctuations, inflation, crop yields, seasonal cycles, weather conditions (including the potential effects of climate change), temperature extremes and natural disasters (including floods, droughts, water scarcity, frosts, earthquakes and hurricanes), pest and disease problems, changes in currency exchange rates, imbalances between supply and demand, natural disasters and government programs and policies among other factors. Volatile fuel costs translate into unpredictable costs for the products and services we receive from our third-party providers including, but not limited to, distribution costs for our products and packaging costs. While we may seek to offset the volatility of such costs with a combination of cost savings initiatives, operating efficiencies and price increases to our customers, we may be unable to manage cost volatility. If we are unable to fully offset the volatility of such costs, our financial results could be adversely affected.

 

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We may experience difficulties with our new enterprise resource planning (“ERP”) system.

In 2018 we implemented a new ERP system used to manage our business and summarize our operating results by efficiently maintaining our books and records, which implementation is continuing. The implementation of the new ERP system has required, and will continue to require, the investment of significant financial and human resources. We may not be able to successfully complete the full implementation of the ERP system without experiencing difficulties. Any disruptions, delays or deficiencies in the design and implementation of the new ERP system could adversely affect our ability to manufacture products, process orders, ship merchandise, provide services and customer support, send invoices and track payments, fulfill contractual obligations, integrate acquisitions, or otherwise operate our business. It is also possible that the migration to a new ERP system could adversely affect our internal controls over financial reporting.

We are reliant on Laird Hamilton and Gabrielle Reece to develop new products and market our brand.

Many of the Company’s current products and planned future products are based on the lifestyle of Mr. Hamilton and Ms. Reece. Pursuant to the License and Preservation Agreement, dated May 26, 2020, by and among Mr. Hamilton, Ms. Reece and the Company, Mr. Hamilton and Ms. Reece granted us a limited, exclusive license to use their respective images, signatures, voices and names (other than those owned by the Company), rights of publicity and common law and statutory rights to the foregoing. Any use of the licensed property that is in accordance with the historical standard of use and is not objected to by Mr. Hamilton or Ms. Reece within 30 days of the first intra-company disclosure of a bona-fide intent to make such use is deemed approved. Any new use of the licensed property shall satisfy the historical standard of use and shall be primarily directed to the advertising, promotion or marketing of the Company’s products and services. If Mr. Hamilton or Ms. Reece object to a proposed use of the licensed property, the Company may be prevented from implementing our business plan in a timely manner, or at all, outside of previously approved usages or usages consistent with certain pre-approved product guidelines. Also, the Company depends on the positive image and public popularity of Mr. Hamilton and Ms. Reece to maintain and increase brand recognition. Customers may be drawn to our products because of their involvement in our Company as celebrities. If Mr. Hamilton or Ms. Reece’s image, reputation or popularity is materially and adversely affected, this could negatively affect the marketability and sales of our products and the Company.

Laird Hamilton’s and Gabrielle Reece’s involvement with other business and personal ventures might interfere with their ability to fully engage with their Company obligations.

Mr. Hamilton and Ms. Reece may engage in outside business activities from time to time, including the XPT Extreme Performance Training brand, Laird Apparel and various endorsement opportunities. These activities may interfere with the respective time and attention Mr. Hamilton and Ms. Reece can devote to the Company’s business and affairs, which could have a material and adverse effect on the business. Also, we have entered only limited noncompetition and nonsolicitation agreements with Mr. Hamilton and Ms. Reece, which makes us vulnerable to competition from them. These conflicts of interest may result in the loss of business opportunities, which may materially and adversely affect our prospects, business advantage, financial condition and results of operations.

 

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We are dependent on our management team, and the loss of any key member of this team may prevent us from implementing our business plan in a timely manner, or at all.

Our success depends largely upon the continued services of our executive officers and other key personnel, particularly Paul Hodge, Laird Hamilton, Valerie Ells, Jamie Eichman, and Andrew McCormick. Our executive officers or key personnel could terminate their employment with us at any time without penalty. Mr. Hamilton, Mr. Hodge, and certain other of our executive officers frequently participate in a wide variety of activities, including extreme mountain, desert, snow and ocean sports, motorsports, flying private aircraft (including experimental aircraft), and attempting small aircraft time and distance records, which have in the past resulted in serious injuries to members of our management team, and subject them to a significant risk of serious injury or death. In addition, we do not maintain key person life insurance policies on any of our employees. The loss of one or more of these executive officers or key personnel could seriously harm our business and may prevent us from implementing our business plan in a timely manner, or at all.

If the reputation of our brand erodes significantly, it could have a material impact on our results of operations.

Our financial success is directly dependent on the consumer perception of our brand. The success of our brand may suffer if our marketing plans or product initiatives do not have the desired impact on our brand’s image or its ability to attract consumers. Further, our results could be negatively affected if our brand suffers substantial damage to its reputation due to real or perceived quality issues or the Company or any of its executives or Mr. Hamilton or Ms. Reece is perceived to act in an irresponsible or objectionable manner. In addition, it is possible for such information, misperceptions and opinions to be shared quickly and disseminated widely due to the continued growing use of social and digital media.

We rely on retailers and distributors for a substantial portion of our sales, and our failure to maintain and further develop our sales channels could harm our business.

We sell a substantial portion of our products through retailers such as Costco, Natural Grocers, CVS, Kroger and REI, distributors such United Natural Foods, Inc. and KeHE Distributors, and online through Amazon.com, and we depend on these third parties to sell our products to consumers. The largest retailer of our products in 2019 and the first six months of 2020 was Costco, which accounted for 11.4% and 22.1% of our total net sales, respectively, and sales through Amazon.com accounted for 30.2% and 26.2% of our total net sales in 2019 and the first six months of 2020, respectively. No other retailer or distributor represented more than 10% of our total net sales in 2019 or the first six months of 2020.

The loss of, or business disruption at, one or more of these retailers or distributors or a negative change in our relationship with Costco or Amazon.com or a disruption to Amazon.com as a sales channel could have a material adverse effect on our business. If we do not maintain our relationship with existing retailers and distributors or develop relationships with new retailers and distributors, the growth of our business may be adversely affected and our business may be harmed.

We are not the exclusive seller of our products into online channels, such as Amazon.com, and face competition in that channel from resellers of our products. Further, the terms of our agreements with these distributors allow us to plan for the future, maintain growth and strengthen our relationships with key customers. If we are required to obtain additional or alternative distribution agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory distribution agreements may inhibit our ability to implement our business plan or to establish markets necessary to expand the distribution of our products successfully.

 

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We depend upon internet search engines and other providers of digital advertising to attract a significant portion of our potential customers to our website, and any change in the prominence of our website in either paid or algorithmic search result listings or an increase in purchasing digital ads could cause the number of visitors to our website and our revenue to decline.

We depend in significant part on various internet search engines, such as Google, and other providers of digital advertising to direct a significant number of potential customers to our website. Search websites typically provide two types of search results, algorithmic and paid listings. Algorithmic, or organic, listings are determined and displayed solely by a set of formulas designed by search companies. Paid listings can be purchased and then are displayed if particular words are included in a user’s internet search. Placement in paid listings is generally not determined solely on the bid price, but also takes into account the search engines’ assessment of the quality of the website featured in the paid listing and other factors. We rely on both algorithmic and paid search results, as well as digital advertising on other websites and through other providers, to direct a substantial share of the visitors to our website.

Our ability to maintain the number of visitors to our website from internet search websites and other websites is not entirely within our control. For example, internet search websites frequently revise their algorithms in an attempt to optimize their search result listings or to implement their internal standards and strategies. Changes in the algorithms could cause our website to receive less favorable placements, which could reduce the number of users who visit our website. We have experienced and continue to experience fluctuations in the search result rankings for our website.

In addition, the prominence of the placement of our advertisements is in part determined by the amount we are willing to pay for the advertisement. We bid against our competitors for the display of paid search engine advertisements and some of our competitors have greater resources with which to bid and better brand recognition than we have. Additionally, as we increase the number of third-party distributors of our products, they have occasionally targeted similar individuals or use similar key words. If competition for the display of paid advertisements in response to search terms related to our online services increases, our online advertising expenses could rise significantly, and we may be required to reduce the number of our paid search advertisements. If we reduce our advertising with search engines, our consumer traffic may significantly decline, or we may be unable to maintain a cost-effective search engine marketing program.

Other factors, such as search engine technical difficulties, search engine technical changes and technical or presentation changes we make to our website, could also cause our website to be listed less prominently in algorithmic search results. Any adverse effect on the placement of our website in search engine results could reduce the number of users who visit our website and drive up the cost of customer acquisition. If visits to our website decrease, our revenue may decline, and we may need to resort to more costly sources to acquire new customers and such decreased revenue and/or increased expense could materially and adversely affect our business and profitability.

Our customers generally are not obligated to continue purchasing products from us.

Many of our customers are individuals that buy from us under purchase orders, and we generally do not have long-term agreements with or commitments from these customers for the purchase of products. We cannot provide assurance that our customers, including customers that participate in our subscription programs, will maintain or increase their sales volumes or orders for the products supplied by us or that we will be able to maintain or add to our existing customer base. Decreases in our customers’ sales volumes or orders for products supplied by us may have a material adverse effect on our business, financial condition or results of operations.

 

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We may not be able to successfully implement our growth strategy for our brand on a timely basis or at all.

We believe that our future success depends, in part, on our ability to implement our growth strategy of leveraging our existing brand and products to drive increased sales. Our ability to implement this strategy depends, among other things, on our ability to:

 

   

enter distribution and other strategic arrangements with third-party retailers and other potential distributors of our products;

 

   

successfully compete in the product categories in which we choose to operate;

 

   

introduce new and appealing products and successfully innovate on our existing products;

 

   

develop and maintain consumer interest in our brand; and

 

   

increase our brand recognition and loyalty.

We may not be able to implement this growth strategy successfully. Our planned marketing expenditures may not result in increased total sales or generate sufficient levels of consumer interest or brand awareness, and our high rates of sales and income growth may not be sustainable over time. Our sales and results of operations will be negatively affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.

Failure to maintain sufficient internal production capacity, source appropriate external production capacity, or to enter into third-party agreements on terms that are beneficial for us may result in our inability to meet customer demand and/or may increase our operating costs and capital expenditures.

We intend to rely on internal production capacity and, to a lesser extent, third-party co-packers to fulfill our growing production needs. We have plans to expand our own production facilities, but in the short-term may need to increase our reliance on third parties to provide production and supply certain services, commonly referred to as “co-packing” agreements, for a number of our products, including our liquid products. A failure by us or our co-packers to comply with food safety, environmental, or other laws and regulations, or to produce products of the quality and taste-profile we expect, or with efficiency and at costs we expect, may also disrupt our supply of products. In addition, we may experience increased distribution and warehousing costs due to capacity constraints resulting from our growth. If we need to enter additional co-packing, warehousing or distribution agreements in the future, we can provide no assurance that we would be able to find acceptable third-party providers or enter into agreements on satisfactory terms or at all. In addition, we may need to expand our internal capacity, which could increase our operating costs and could require significant capital expenditures. If we cannot maintain sufficient and satisfactory production, warehousing and distribution capacity, either internally or through third party agreements, we may be unable to meet customer demand and/or our manufacturing, distribution and warehousing costs may increase, which could negatively affect our business.

If we face labor shortages or increased labor costs, our results of operations and our growth could be adversely affected.

Labor is a significant component of the cost of operating our business. Our ability to meet our labor needs while controlling labor costs is subject to external factors, such as employment levels, prevailing wage rates, minimum wage legislation, changing demographics, health and other insurance costs and governmental labor and employment requirements. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, while increasing our wages could cause our earnings to decrease. Our business is also located in a small metropolitan area that has limited access to skilled and unskilled labor. If we face labor shortages or increased labor costs because of increased competition for employees from our competitors and other

 

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industries, higher employee-turnover rates, or increases in the federal- or state-mandated minimum wage, change in exempt and non-exempt status, or other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance), our operating expenses could increase and our business, financial condition and results of operations could be materially and adversely affected.

Our financial success depends on our ability to successfully predict changes in consumer preferences and develop successful new products and marketing strategies in response.

Consumer preferences evolve over time and the success of our products depends on our ability to identify the tastes and dietary habits of consumers and to offer products that appeal to their preferences and address their concerns. We must also adapt our marketing strategies to these fluid consumer preferences as they develop. Recent trends in consumer preferences that may impact us include:

 

   

dietary trends and increased attention to nutritional values, such as sugar, fat, protein, fiber or calorie content;

 

   

concerns about obesity and the health effects of specific ingredients and nutrients, such as sugar and other sweeteners, ingredients derived from genetically modified organisms (GMOs), gluten, dairy, soybeans, nuts, oils, vitamins, fiber and minerals; and

 

   

increasing awareness of the environmental and social effects of product production, including agricultural production by food manufacturers and their suppliers.

The development and introduction of new products could require substantial research and development and other expenditures, including capital investment and marketing and warehouse slotting investments. In addition, the success of our innovation and product development efforts depends upon our ability to anticipate changes in consumers’ preferences, the technical capability of our research and development staff in developing, formulating and testing new products, and our ability to introduce the resulting products in a timely manner. If our products fail to meet consumer preferences, or we fail to introduce new and improved products on a timely basis, then the return on that investment will be less than anticipated and our strategy to grow sales and profits through product innovations and extensions will be less successful.

Consumer preferences for natural and organic food products are difficult to predict and may change.

Our business is primarily focused on sales of non-GMO, organic and natural products, and our success depends, in part, on our ability to offer products that anticipate the tastes and dietary habits of consumers and appeal to their preferences on a timely and affordable basis. A significant shift in consumer demand away from our products or our failure to maintain our current market position, could reduce our sales and harm our business. Consumer trends change based on a number of possible factors, including nutritional values, a change in consumer preferences or general economic conditions. Additionally, there is a growing focus among some consumers to buy local food products in an attempt to reduce the carbon footprint associated with transporting food products from longer distances, which could result in a decrease in the demand for food products and ingredients that we import from other countries or transport from remote processing locations or growing regions. Further, failures by us or our competitors to deliver quality products could erode consumer trust in the organic certification of foods. A significant shift in consumer demand away from our products would reduce our market share, harming our business.

 

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Technology failures or security breaches could disrupt our operations and negatively impact our business.

In the normal course of business, we rely on information technology systems to process, transmit, and store electronic information. For example, our production and distribution facilities and inventory management utilize information technology to increase efficiencies and limit costs. Information technology systems are also integral to the reporting of our results of operations. Furthermore, a significant portion of the communications between, and storage of personal data of, our personnel, customers, and suppliers depends on information technology, including social media platforms.

Our information technology systems may be vulnerable to a variety of interruptions, as a result of updating our enterprise platform or due to events beyond our control, including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues. These events could compromise our confidential information, impede or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigation and reputational damage. Furthermore, if a breach or other breakdown results in disclosure of confidential or personal information, we may suffer reputational, competitive and/or business harm.

To date, we have experienced a break-in against one of our social media accounts which was quickly remediated, and a third party that processes payments for our website experienced a data breach in which certain customer data (but not credit card numbers, Social Security numbers or similar sensitive personal information) may have been compromised, but we have not experienced a material breach of cyber security, either directly or indirectly. While we have implemented administrative and technical controls and taken other preventive actions to reduce the risk of cyber incidents and protect our information technology, they may be insufficient to prevent physical and electronic break-ins, cyber-attacks or other security breaches to our computer systems, which could have a material adverse effect on our business, financial condition or results of operations.

Economic downturns could limit consumer demand for our products and negatively affect our sales and profitability.

The premium organic and natural food industry is sensitive to national and regional economic conditions and the demand for the products that we distribute may be adversely affected from time to time by economic downturns that impact consumer spending, including discretionary spending. Future economic conditions such as employment levels, business conditions, housing starts, interest rates, inflation rates, energy and fuel costs and tax rates could reduce consumer spending or change consumer purchasing habits. Among these changes could be a reduction in the number of natural and organic products that consumers purchase where there are non-organic alternatives, given that many premium natural and organic products, and particularly premium natural and organic foods, often have higher retail prices than do their non-organic counterparts.

The failure to successfully integrate newly acquired products or businesses could negatively impact our profitability.

From time to time, we may consider opportunities to acquire other products or businesses that may expand the breadth of our markets or customer base. The success of future acquisitions will be dependent upon our ability to effectively integrate the acquired products and operations into our business. Integration can be complex, expensive and time-consuming. The failure to successfully integrate acquired products or businesses in a timely and cost-effective manner could materially adversely affect our business, prospects, results of operations and financial condition. The diversion of our management’s attention and any difficulties encountered in any integration process could also

 

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have a material adverse effect on our ability to manage our business. In addition, the integration process could result in the loss of key employees, the disruption of ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, any of which could adversely affect our ability to maintain the appeal of our brand and our relationships with customers, employees or other third parties or our ability to achieve the anticipated benefits of such acquisitions and could harm our financial performance. We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired products or businesses. Additionally, an additional risk inherent in any acquisition is that we fail to realize a positive return on our investment.

Regulatory Risks

Our products and operations are subject to government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could adversely affect our business and results of operations.

We are affected by a wide range of governmental laws and regulations. Examples of regulatory agencies influencing our operations include the United States Department of Agriculture (the “USDA”), the Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”), and the Environmental Protection Agency (the “EPA”), among others. These agencies regulate, among other things, with respect to our products and operations:

 

   

design, development and manufacturing;

 

   

testing, labeling, content and language of instructions for use and storage;

 

   

product safety;

 

   

marketing, sales and distribution;

 

   

record keeping procedures;

 

   

advertising and promotion;

 

   

recalls and corrective actions; and

 

   

product import and export.

These laws and regulations affect various aspects of our business. For example, certain food ingredient products manufactured by Laird Superfood are regulated under the United States Federal Food, Drug, and Cosmetic Act (“FDCA”), as administered by the FDA. Under the FDCA, pre-marketing approval by the FDA is required for the sale of a food ingredient which is a food additive unless the substance is generally recognized as safe, under the conditions of its intended use by qualified experts in food safety. We believe that most food ingredients in our products are generally recognized as safe. However, this status cannot be determined until actual formulations and uses are finalized. As a result, we may be adversely affected if the FDA determines that our food ingredient products do not meet the criteria for generally recognized as safe.

The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. The failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions and third-party lawsuits such as:

 

   

warning letters;

 

   

fines;

 

   

injunctions;

 

   

civil penalties and civil lawsuits;

 

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termination of distribution;

 

   

recalls or seizures of products;

 

   

delays in the introduction of products into the market; and

 

   

total or partial suspension of production.

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition and results of operations. We may also be required to take corrective actions, such as installing additional equipment or taking other actions, each of which could require us to make substantial capital expenditures. In addition, we could be required to indemnify our employees in connection with any expenses or liabilities that they may incur individually in connection with regulatory action against them. As a result, our future business prospects could deteriorate due to regulatory constraints, and our profitability could be impaired by our obligation to provide such indemnification to our employees.

The FDA may also take issue with the name “Laird Superfood” or any derivative name, as “superfood” is, to our knowledge, still undefined by regulatory agencies. In addition to any regulatory costs, if the Company were required to change its name, there would likely be, or could be, among other results, a negative effect on the Company’s branding and customer perception.

Our reputation could suffer from real or perceived issues involving the labeling or marketing of our products.

Products that we sell carry claims as to their origin, ingredients or health benefits, including, by way of example, the use of the term “natural”, “functional”, or “healthy”, or similar synonyms or implied statements relating to such benefits. Although the FDA and the USDA each has issued statements regarding the appropriate use of the word “natural,” there is no single, United States government regulated definition of the term “natural” for use in the food industry, which is true for many other adjectives common in the better-for-you and functionally-focused food industry. The resulting uncertainty has led to consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against several food companies that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled “natural” but that nonetheless contain synthetic ingredients or components. Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Any of these events could adversely affect our reputation and brand and decrease our sales, which would have a material adverse effect on our business, financial condition and results of operations.

Similarly, certain USDA regulations set forth the minimum standards producers must meet in order to have their products labeled as “certified organic,” and we currently manufacture several organic products that are covered by these regulations. While we believe our products and our supply chain are in compliance with these regulations, changes to food regulations may increase our costs to remain in compliance. We could lose our “organic” certification if a facility becomes contaminated with non-organic ingredients, if we do not use raw materials that are certified organic, or if key ingredients used in our products are no longer allowed to be used in food certified as “organic.” The loss of our “organic” certifications could materially and adversely affect our business, financial condition or results of operations.

 

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In addition, the USDA has proposed a rule requiring disclosure of the use of genetic engineering in manufacturing a product or an ingredient used in a product. The rule has not been finalized, and we are unable to predict with certainty what the final requirements will be. If the USDA issues bioengineering disclosure regulations inconsistent with our practices, the resulting changes in labeling could adversely affect customer acceptance of our product and materially and adversely affect our business.

Litigation and regulatory enforcement concerning marketing and labeling of food products could adversely affect our business and reputation.

The marketing and labeling of any food product in recent years has brought increased risk that consumers will bring class action lawsuits and that the FTC and/or state attorneys general will bring legal action concerning the truth and accuracy of the marketing and labeling of the product. Examples of causes of action that may be asserted in a consumer class action lawsuit include fraud, unfair trade practices and breach of state consumer protection statutes. The FTC and/or state attorneys general may bring legal action that seeks removal of a product from the marketplace and impose fines and penalties. Even when unmerited, class claims, action by the FTC or state attorneys general enforcement actions can be expensive to defend and adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image, which could have a material and adverse effect on our business, financial condition or results of operations.

We may be subject to specific FTC endorsement and/or testimonial regulations that would interfere with our advertising, marketing and labeling strategies.

The FTC revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Guides”), which became effective on December 1, 2009. Although the Guides are not binding, they explain how the FTC interprets Section 5 of the FTC Act’s prohibition on unfair or deceptive acts or practices. Consequently, the FTC could bring a Section 5 enforcement action based on practices that are inconsistent with the Guides. Under the revised Guides, advertisements that feature a consumer and convey his or her atypical experience with a product or service are required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides, which allowed advertisers to describe atypical results in a testimonial as long as they included a disclaimer such as “results not typical,” the revised Guides no longer contain such a safe harbor. The revised Guides also add new examples to illustrate the long-standing principle that “material connections” between advertisers and endorsers (such as payments or free products), connections that consumers might not expect, must be disclosed. While we do request that public persons who we provide samples of product disclose their relationship with us prior to sharing on social media or other endorsement, we cannot ensure all recipients comply with this request. We have continually adapted our marketing efforts to be compliant with the revised Guides. However, it is possible that our use, and that of our employees, of testimonials in the advertising and promotion of our products will be significantly impacted and therefore might negatively affect our sales.

We may face scrutiny from evolving state regulations concerning health, safety, our supply chain and marketing.

In addition to the federal regulatory issues listed above, there are a growing number of state regulations that might impair our ability to operate and avoid interruption. For example, California currently enforces legislation commonly referred to as “Proposition 65” that requires that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity. Although we seek to comply with the requirements of Proposition 65, as well as to educate our customers regarding the substance of Proposition 65 and the relative metals contents in various natural foods, there can be no assurance that we will not be adversely affected by litigation or other actions relating to Proposition 65 or future legislation that is

 

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similar or related thereto. Also, the Transparency in Supply Chains Act of 2010 in California requires us to audit our vendors with respect to risks of human trafficking and slavery and mitigate these risks in our operations. Any failure to disclose issues or other non-compliance could subject us to action by the California Attorney General or other regulatory authorities. Increased compliance costs associated with operating in California and other states could adversely affect our business, financial condition and results of operations.

Risks Relating to the Offering and Ownership of Our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The offering price for our common stock may vary from the market price of our common stock following our initial public offering. If you purchase shares in this offering, you may not be able to resell those shares at or above the offering price. An active or liquid market in our common stock may not develop upon the closing of the offering or, if it does develop, it may not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

overall performance of the equity markets;

 

   

the development and sustainability of an active trading market for our common stock;

 

   

our intentions and ability to list our common stock on the NYSE American and our subsequent ability to maintain such listing;

 

   

our operating performance and the performance of other similar companies, or companies in the premium organic and natural food industry;

 

   

changes in recommendations by securities analysts that elect to follow the Company;

 

   

press releases or other public announcements by us or others, including our filings with the SEC;

 

   

changes in expectations related to consumer preferences in the premium organic and natural food industry;

 

   

recruitment or departure of key personnel;

 

   

changes in our capital structure, such as future issuances of debt or equity securities;

 

   

regulatory developments in the United States or foreign countries;

 

   

the economy as a whole, market conditions in our industry, and the industries of our customers;

 

   

the expiration of market standoff or contractual lock-up agreements;

 

   

the size of our market float; and

 

   

any other factors discussed in this prospectus.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many small-cap companies. Stock prices of many small-cap companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

 

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We may not be able to satisfy listing requirements of the NYSE American to maintain a listing of our common stock.

If our common stock is listed on the NYSE American, we must meet certain financial and liquidity criteria to maintain such listing. If we fail to meet any of the NYSE American’s listing standards, our common stock may be delisted. In addition, our board may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from the NYSE American may materially impair our shareholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. In addition, the delisting of our common stock could significantly impair our ability to raise capital in the future.

If we fail to meet the minimum requirements for listing on the NYSE American, we will seek to have our common stock quoted on the over-the-counter (“OTC”) markets. The OTC markets are not a stock exchange, and if our common stock trades on an OTC market rather than the NYSE American, there may be significantly less trading volume and analyst coverage of, and significantly less investor interest in, our common stock, which may lead to lower trading prices for our common stock. The OTC markets are also subject to additional federal and state securities regulations that may materially and adversely affect the value of our common stock.

We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE American and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs, however such costs may be material to our business.

Because the initial public offering price of the offered shares is higher than the pro forma net tangible book value per share of our outstanding shares following the offering, new investors will experience immediate dilution.

The initial public offering price is higher than the pro forma net tangible book value per share of our shares immediately following the offering, based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase our common stock in the offering, you will experience immediate dilution of $13.44 per share, which is the difference between the price per share you pay for the offered shares and our pro forma net tangible book value per share as of June 30, 2020, after giving effect to the issuance of offered shares in the offering. To the extent options with an exercise price per share that is less than the pro forma as adjusted net tangible book value per share are exercised, there will be further dilution to investors in this offering. See the section titled “Dilution” for additional information.

 

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State securities laws may limit secondary trading of our common stock if our common stock is not listed on a national securities exchange, which may restrict the states in which and conditions under which you can sell shares purchased in this offering.

Secondary trading of the shares sold in this offering will not be possible in any state until the shares are qualified for sale under the applicable securities laws of the state, or there is confirmation that an exemption, such as resulting from the listing of our common stock on the NYSE American or another national securities exchange or listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to list our common stock on a national securities exchange and otherwise fail to register, qualify, obtain or verify an exemption for the secondary trading of our common stock in any particular state, any shares purchased in this offering may not be offered, sold to, or be purchased by a resident of such state. If a significant number of states refuse to permit secondary trading in our common stock, the liquidity for our common stock could be significantly impaired, thus causing you to suffer a loss on your investment. While we intend to seek to facilitate secondary trading in our common stock in the event our common stock is not listed on a national securities exchange, there can be no assurances that we will be successful in qualifying or finding an exemption in each state or other jurisdictions.

We may be subject to securities litigation, which is expensive and could divert management attention.

Our stock price is likely to be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to an increased incidence of securities class action litigation, and such litigation is an increasing trend. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us and our business. If few analysts commence coverage of us, or if analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price for our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause the price and trading volume for our common stock to decline.

We have broad discretion in the use of the net proceeds from the offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds from this offering. We intend to use net proceeds from this offering for working capital and general corporate purposes. As a result, we may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

 

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The concentration of our stock ownership limits our shareholders’ ability to influence corporate matters.

Following the offering, our officers and directors will continue to have significant influence over us through their ownership of shares of our common stock. As of the date of this prospectus, our directors and officers beneficially own shares of our common stock which will represent approximately 25.5% of the voting power of our outstanding capital stock following the offering and concurrent private placement. As a consequence, our directors and officers will have the power to affect our management and affairs and overall matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our Company or our assets, for the foreseeable future. This concentrated control limits or restricts our shareholders’ ability to influence corporate matters and, as a result, we may take actions that our shareholders do not view as beneficial. As a result, the market price of our common stock could be adversely affected.

Provisions in our governing documents and under Delaware law could discourage a takeover that shareholders may consider favorable.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

 

   

authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to defend against a takeover attempt;

 

   

providing that vacancies on the board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office rather than by shareholders;

 

   

advance notice procedures, which apply for shareholders to nominate candidates for election as directors or to bring matters before an annual meeting of shareholders;

 

   

no authorization of cumulative voting, which limits the ability of minority shareholders to elect director candidates;

 

   

certain amendments to our amended and restated certificate of incorporation require the approval of two-thirds of the then outstanding voting power of our capital stock;

 

   

our amended and restated certificate of incorporation requires the approval of two-thirds of the then outstanding voting power of our capital stock for shareholders to adopt, amend, alter or repeal our bylaws, or adopt any provision inconsistent with our bylaws;

 

   

a prohibition on shareholder action by written consent, which means that our shareholders will only be able to take action at a meeting of shareholders; and

 

   

preventing shareholders from calling special meetings.

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” shareholder for a period of three years following the date on which the shareholder becomes an “interested” shareholder. For a description of our capital stock, see the section titled “Description of Capital Stock.”

 

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We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting of Section 404(b) of the Sarbanes-Oxley Act;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have not included all the executive compensation related information that would be required if we were not an emerging growth company. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards.

We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fifth fiscal year after the date of this prospectus.

Since we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, stock price appreciation, if any, will be your sole source of gain.

We currently intend to retain all our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be your sole source of gain for the foreseeable future.

 

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Our certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for:

 

   

any derivative action or proceeding brought on our behalf;

 

   

any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders;

 

   

any action asserting a claim against us or our directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; and

 

   

any action asserting a claim against us or our directors, officers or employees governed by the internal affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.

In addition, our certificate of incorporation provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”), unless we consent in writing to the selection of an alternative forum. This exclusive forum provision does not apply to claims under the Exchange Act.

These exclusive forum provisions may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage these types of lawsuits. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the exclusive forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. 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 the prospectus 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:

 

   

our limited operating history and ability to become profitable;

 

   

our reliance on third parties for raw materials and production of some of our products;

 

   

our ability to manage our growth and scale our manufacturing and processing capabilities effectively;

 

   

our future capital needs;

 

   

our ability to retain and grow our customer base;

 

   

our reliance on independent distributors for a substantial portion of our sales;

 

   

our ability to evaluate and measure our business, prospects and performance metrics;

 

   

our ability to compete and succeed in a highly competitive and evolving industry;

 

   

the health of the premium organic and natural food industry as a whole;

 

   

risks related to our intellectual property rights and developing a strong brand;

 

   

our reliance on Laird Hamilton and Gabrielle Reece;

 

   

regulatory risks;

 

   

risks related to our international operations;

 

   

the absence of liquidity of our common stock;

 

   

the risk of substantial dilution from future issuances of our equity securities; and

 

   

the other risks set forth herein under the caption “Risk Factors.”

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 prospectus. When considering forward-looking statements, you should keep in mind the cautionary statements in this prospectus. 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.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of

 

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this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all our forward-looking statements by these cautionary statements.

 

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INDUSTRY AND MARKET DATA

In addition to the industry, market and competitive position data referenced in this prospectus from our own internal research and estimates, some market data and other statistical information included in this prospectus are based in part upon information obtained from third-party industry publications, research, surveys and studies, none of which we commissioned. Third-party industry publications, research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

We are responsible for all of the disclosure in this prospectus and while we believe that each of the publications, research, surveys and studies included in this prospectus are prepared by reputable sources, neither we nor the underwriters have independently verified market and industry data from third-party sources.

Certain information in the text of this prospectus is contained in independent industry publications. The source of certain of these independent industry publications is provided below:

 

   

U.S. Census Bureau;

 

   

Specialty Coffee Association of America;

 

   

Packaged Facts, Inc.;

 

   

Information Resources, Inc. (IRI) / Nielsen;

 

   

Bloomberg;

 

   

Nutrition Business Journal;

 

   

New Hope Network;

 

   

bevindustry.com; and

 

   

Business Insider Intelligence.

In addition, while we believe our own internal research and estimates are reliable, such research and estimates have not been verified by independent sources. Assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors,” and you are cautioned not to give undue weight to such information. These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.”

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of shares of our common stock in this offering will be approximately $52.7 million, or approximately $60.9 million if the underwriters exercise in full their option to purchase additional shares from us, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock, and enable access to the public equity markets for us and our shareholders.

We intend to use the net proceeds from this offering for working capital and general corporate purposes, including operating expenses and capital expenditures. Additionally, we may use a portion of the net proceeds we receive from this offering to acquire businesses or products. However, we do not have agreements or commitments for any acquisitions at this time. We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds from this offering as described above, we may invest the net proceeds that we receive in this offering in short-term, investment grade, interest-bearing instruments. You will not have an opportunity to evaluate the economic, financial or other information on which we base our decisions regarding the use of these proceeds.

 

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DIVIDEND POLICY

We have never declared or paid dividends on our capital stock. We do not anticipate paying any dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. Any future determination to declare dividends will be subject to the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects and any other factors deemed relevant by our board of directors. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2020 on:

 

   

an actual basis, except to the extent it has been adjusted to give effect to a two-for-one split of our common stock, which was effected on August 19, 2020;

 

   

on a pro forma basis to give effect to: (i) the conversion of all shares of our outstanding convertible preferred stock as of June 30, 2020 into an aggregate of 1,395,470 shares of common stock immediately prior to the consummation of this offering; and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to the sale of 2,650,000 shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with our financial statements and related notes included elsewhere in this prospectus, and the information set forth in the sections of this prospectus titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    As of June 30, 2020  
    Actual     Pro-Forma     Adjusted
Pro-Forma
 

Balance Sheet Data:

     

Cash and cash equivalents

  $ 8,549,176     $ 8,549,176     $ 61,268,176  

Total debt(1)

    51,000       51,000       51,000  

Convertible Preferred Stock

     

Preferred stock, $0.001 par value per share, 1,061,720 shares authorized; 697,735 issued and outstanding (actual); no shares issued and outstanding (pro-forma and as adjusted)

    15,929,297       -         -    
 

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

     

Common stock, $0.001 par value; 9,600,000 shares authorized; 4,695,248 and 4,330,500 issued and outstanding (actual), respectively; 6,090,718 and 5,725,970 issued and outstanding (pro-forma), respectively; 8,740,718 and 8,375,970 issued and outstanding (as adjusted), respectively

    4,330       5,726       8,376  

Additional paid-in capital

    30,346,961       46,274,862       98,991,212  

Accumulated other comprehensive income

    17,119       17,119       17,119  

Accumulated deficit

    (24,078,487     (24,078,487     (24,078,487
 

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    6,289,923       22,219,220       74,938,220  
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 22,270,220     $ 22,270,220     $ 74,989,220  

 

(1)

The Company’s total debt as of June 30, 2020 consists of $51,000 outstanding under a forgivable loan with the City of Sisters, Oregon. See note 6 to our unaudited interim financial statements for the six months ended June 30, 2020 included elsewhere in this prospectus for further details concerning our indebtedness.

 

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The number of shares of common stock issued and outstanding actual, pro forma and pro forma as adjusted in the table above excludes the following:

 

   

514,756 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2020, at a weighted-average exercise price of $6.86 per share;

 

   

90,910 shares to be issued to DMV in the concurrent private placement at a price per share equal to the purchase price to the public in this offering, for a total purchase price of $2,000,020, as more fully described in “Certain Relationships and Related Party Transactions – Related Party Transactions – Stockholder Agreement and Warrant”;

 

   

1,000,000 shares of common stock reserved for issuance under our 2020 Omnibus Incentive Plan, as more fully described in “Executive Compensation – Laird Superfood, Inc. 2020 Omnibus Incentive Plan”; and

 

   

200,000 shares of common stock reserved for issuance under our 2020 Employee Stock Purchase Plan, as more fully described in “Executive Compensation – Laird Superfood, Inc. 2020 Employee Stock Purchase Plan.”

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value per share of our common stock immediately after this offering.

As of June 30, 2020, we had a historical net tangible book value of $18.9 million, or $4.38 per share of common stock. Our net tangible book value represents total tangible assets less total liabilities all divided by the number of shares of common stock outstanding on June 30, 2020. Our pro forma net tangible book value as of June 30, 2020, before giving effect to this offering, was $18.9 million, or $3.31 per share of our common stock. Pro forma net tangible book value, before the issuance and sale of shares in this offering, gives effect to:

 

   

the conversion of all shares of our outstanding convertible preferred stock as of June 30, 2020 into an aggregate of 1,395,470 shares of common stock immediately prior to the consummation of this offering; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the consummation of this offering.

Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering. After giving effect to the sale of shares of common stock in this offering and after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of June 30, 2020 would have been approximately $71.7 million, or $8.56 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $5.25 per share to existing shareholders and an immediate dilution of $13.44 per share to new investors. The following table illustrates this per share dilution:

 

Initial public offering price per share

     $ 22.00  

Historical net tangible book value per share as of June 30, 2020

   $ 4.38    

Pro forma decrease in net tangible book value per share

     (1.07  
  

 

 

   

Pro forma net tangible book value per share as of June 30, 2020

     3.31    

Increase in pro forma net tangible book value per share attributable to new investors

     5.25    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

       8.56  
    

 

 

 

Dilution per share to new investors participating in this offering

     $ 13.44  
    

 

 

 

If the underwriters’ option to purchase additional shares of our common stock from us is exercised in full, the pro forma as adjusted net tangible book value per share of our common stock, after giving effect to this offering, would be $9.10 per share, and the dilution in net tangible book value per share to new investors purchasing shares of our common stock in this offering would be $12.90 per share.

To the extent that outstanding options with an exercise price per share that is less than the pro forma as adjusted net tangible book value per share are exercised, new investors will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.

 

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The following table presents, as of June 30, 2020, on a pro forma as adjusted basis, the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing shareholders and by new investors purchasing common stock in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Cash
Consideration
    Average price
per share
 
     Number     Percent     Amount     Percent  

Existing shareholders

     5,725,970       68.4   $ 39,774,191       40.6   $ 6.95  

New investors

     2,650,000       31.6     58,300,000       59.4     22.00  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     8,375,970       100.0 %   $ 98,074,191       100.0 %   $ 11.71  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Except as otherwise indicated, the above discussion and table assume no exercise of the underwriters’ option to purchase additional shares of our common stock from us. If the underwriters’ option to purchase additional shares of our common stock were exercised in full, our existing shareholders would own 65.3% and our new investors would own 34.7% of the total number of shares of our common stock outstanding upon completion of this offering.

The number of shares of our common stock to be outstanding after this offering includes the number of shares of our common stock outstanding as of June 30, 2020, after giving effect to the conversion of all outstanding shares of convertible preferred stock into 1,395,470 shares of common stock upon the closing of this offering and does not include:

 

   

514,756 shares of common stock issuable upon the exercise of options outstanding as of June 30, 2020, at a weighted-average exercise price of $6.86 per share;

 

   

90,910 shares to be issued to DMV in the concurrent private placement at a price per share equal to the purchase price to the public in this offering, for a total purchase price of $2,000,020, as more fully described in “Certain Relationships and Related Party Transactions – Related Party Transactions – Stockholder Agreement and Warrant”;

 

   

1,000,000 shares of common stock reserved for issuance under our 2020 Omnibus Incentive Plan, as more fully described in “Executive Compensation – Laird Superfood, Inc. 2020 Omnibus Incentive Plan”; and

 

   

200,000 shares of common stock reserved for issuance under our 2020 Employee Stock Purchase Plan, as more fully described in “Executive Compensation – Laird Superfood, Inc. 2020 Employee Stock Purchase Plan.”

 

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SELECTED FINANCIAL DATA

The following selected historical financial data should be read together with the sections of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto and other financial information included elsewhere in this prospectus. The selected financial data in this section are not intended to replace the financial statements and are qualified in their entirety by the financial statements and related notes included elsewhere in this prospectus. We derived our selected statements of operations data for the years ended December 31, 2019 and 2018 and the balance sheet data as of December 31, 2019 from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data for the six months ended June 30, 2020 and 2019 and the selected balance sheet data as of June 30, 2020 are derived from our unaudited interim financial statements included elsewhere in this prospectus and are not necessarily indicative of results to be expected for the full year. The unaudited interim financial information has been prepared on the same basis as the annual financial statements and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in any future period.

 

     Six Months Ended June 30,     Year Ended December 31,  
     2020     2019     2019     2018  
     (unaudited)              

Statement of Operations Data:

        

Sales, net

   $ 11,092,055     $ 5,445,307     $ 13,103,728     $ 8,291,082  

Cost of goods sold

     (7,650,736     (3,269,325     (8,019,094     (5,628,122
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,441,319       2,175,982       5,084,634       2,662,960  

Gross margin

     31.03     39.96     38.80%       32.12%  

Operating expenses:

        

General and administrative

     3,432,012       2,333,499       5,201,184       5,826,035  

Research and product development

     261,111       76,435       324,284       119,487  

Sales and marketing

     4,788,517       3,880,220       8,311,137       5,146,934  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     8,481,640       6,290,154       13,836,605       11,092,456  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (5,040,321     (4,114,172     (8,751,971     (8,429,496

Other income (expense)

     38,701       142,729       248,023       (29,940
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (5,001,620     (3,971,443     (8,503,948     (8,459,436

Deemed contribution from the redemption of preferred stock

     -         -         7,448,879       -    

Less deemed dividend of beneficial conversion feature

     (825,366     -         -         (749,998

Less deemed dividend on warrant discount

     (179,427     -         -         -    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Laird Superfood, Inc. common stockholders

   $ (6,006,413   $ (3,971,443   $ (1,055,069   $ (9,209,434
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to Laird Superfood, Inc common stockholders:(1)

   $ (1.40   $ (1.13   $ (0.29   $ (2.60

Weighted-average shares of common stock outstanding used in computing net loss per share of common stock(2)

     4,303,305       3,514,705       3,668,050       3,541,563  

Basic and diluted pro forma net loss per share to common stockholders (unaudited):(3)

   $ (1.14     $ (0.20  

Weighted-average shares of common stock outstanding used in computing pro forma net loss per share of common stock (unaudited):

     5,261,155         5,371,897    

 

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     As of June 30,     As of December 31,  
     2020     2019     2018  

Balance Sheet Data:

      

Cash and cash equivalents

   $ 8,549,176     $ 1,004,109     $ 17,340,023  

Working capital(4)

     15,985,713       8,527,335       18,497,384  

Property and equipment, net

     2,761,713       3,153,286       985,788  

Total assets

     24,678,717       16,402,185       22,666,890  

Total liabilities

     2,459,497       1,567,889       1,208,838  

Total convertible preferred stock

     15,929,297       6,722,951       21,727,098  

Total stockholders’ equity (deficit)

     6,289,923       8,111,345       (269,046

 

(1)

All share, per share and related information has been retroactively adjusted, where applicable, to reflect the impact of the two-for-one split of our common stock, which was effected on August 19, 2020.

(2)

See statements of operations, Note 12 in the audited financial statements and Note 13 in the unaudited interim financial statements for the six months ended June 30, 2020 included elsewhere in this prospectus for further details on the calculation of net loss per share.

(3)

See Note 1 in the audited financial statements and Note 1 in the unaudited interim financial statements for the six months ended June 30, 2020 included elsewhere in this report for further details on the calculation of basic and diluted pro forma net loss per share.

(4)

The Company defines working capital as current assets less current liabilities.

 

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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 section titled “Selected Financial Data” and the financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.

Overview

Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods.

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.

The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, and roasted and instant coffees, teas and hot chocolate. Our Superfood Creamer coffee creamers represent our largest product category, accounting for 67.8% of gross sales in 2019 and 66.6% of gross sales in the first six months of 2020.

We have experienced strong sales growth since inception. Net sales increased from $8.3 million in 2018 to $13.1 million in 2019, representing year-over-year net sales growth of 58%, and from $5.4 million in the first six months of 2019 to $11.1 million in the first six months of 2020, representing net sales growth of 104% between the periods. The growth over these periods was driven by a significant expansion of our customer base in both online and traditional wholesale channels. New products lines accounted for $335 thousand of the increase in net sales from 2018 to 2019 and $1.4 million of the increase from the first six months of 2019 to the first six months of 2020.

As of June 30, 2020, we had $13.1 million of cash-on-hand and investments and $51 thousand of total debt, compared to $6.5 million of cash-on-hand and investments and $51 thousand of total debt as of December 31, 2019.

We have generated losses from inception. Net loss in 2018, 2019 and the first six months of 2020 was $8.5 million, $8.5 million and $5.0 million, respectively, as we invested in product development and the growth of our business. Going forward, we intend to continue to invest in product development, marketing initiatives, sales, equipment, facilities and personnel as we believe the demand for our products will continue to accelerate as we further penetrate the market opportunity presented by our current product lines and expand our platform to include additional products.

In November 2019, we negotiated the repurchase of 609,013 shares of Series A-1 preferred stock from a private investor for $7.5 million, or $12.32 per share, which shares were initially purchased

 

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from the Company for $15.0 million, or $24.63 per share. At the time of repurchase, the carrying value of the shares of Series A-1 preferred stock outstanding on the balance sheet was $15.0 million, 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 $7.4 million, which was included in net loss available to common stockholders.

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 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.

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 rate will be affected by the repeat usage dynamics of existing and newly acquired customers.

Ability to Expand Our Product Line

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

Ability to Expand Gross Margins

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

Ability to Expand Operating Margins

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

 

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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.

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.

Seasonality

Because we are so early in our lifecycle of growth, it is difficult to discern the exact magnitude of seasonality affecting our business. Any evidence of seasonality is not discernable from our growth.

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 website, 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.

Following the completion of this offering, we expect 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.

Interest Expense

Interest expense consists primarily of interest related to our additional rent owed to our landlord for landlord improvements.

Benefit from 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.

 

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Results of Operations

Comparison of the three and six months ended June 30, 2020 (“Q2 2020” and “1H2020”, respectively) and June 30, 2019 (“Q2 2019” and “1H2019”, respectively)

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

 

     For the six months ended
June 30,
   
Change
    %
Change
 
     2020     2019  

Sales, net

   $ 11,092,055     $ 5,445,307     $ 5,646,748       104

Cost of goods sold

     (7,650,736     (3,269,325     (4,381,411     134
  

 

 

   

 

 

   

 

 

   

Gross profit

     3,441,319       2,175,982       1,265,337       58

Gross margin

     31.0     40.0    

General and administrative

     3,432,012       2,333,499       1,098,513       47

Research and product development

     261,111       76,435       184,676       242

Sales and marketing

     4,788,517       3,880,220       908,297       23
  

 

 

   

 

 

   

 

 

   

Total expenses

     8,481,640       6,290,154       2,191,486       35

Operating loss

     (5,040,321     (4,114,172     (926,149     23

Other income

     38,701       142,729       (104,028     -73
  

 

 

   

 

 

   

 

 

   

Loss before income taxes

     (5,001,620     (3,971,443     (1,030,177     26

Benefit from income taxes

     -         -         -         0
  

 

 

   

 

 

   

 

 

   

Net loss

     (5,001,620     (3,971,443     (1,030,177     26

Less deemed dividend of beneficial conversion feature

     (825,366     -         (825,366     100

Less deemed dividend of warrant discount

     (179,427     -         (179,427     100
  

 

 

   

 

 

   

 

 

   

Net loss attributable to Laird Superfood, Inc. common stockholders

   $ (6,006,413   $ (3,971,443   $ (2,034,970     -51
  

 

 

   

 

 

   

 

 

   

Sales, Net

 

    

Three months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Sales, net

   $  5,608,830     $  2,954,190     $  2,654,640       90%  

Net sales increased by $2.6 million to $5.6 million in Q2 2020, compared to $3.0 million in Q2 2019. This increase was due to a combination of growth in our online and wholesale channels, primarily caused by an increase in sales volume. Products introduced after Q2 2019, including Vanilla Creamer, Original with Functional Mushrooms Creamer, Hot Chocolate with Functional Mushrooms, Organic Peruvian Coffee with Functional Mushrooms and Liquid Creamers, accounted for $1.0 million of gross sales in Q2 2020. Year-over-year gross sales growth in existing products accounted for $2.3 million of the increase in gross sales in Q2 2020 compared to Q2 2019. During Q2 2020, 31% of all online orders were repeat orders, compared to 34% in Q2 2019, and 29% of our direct website net sales came from subscription programs, compared to 28% in Q2 2019.

 

    

Six months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Sales, net

   $  11,092,055     $  5,445,307     $  5,646,748       104%  

 

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Net sales increased by $5.6 million to $11.1 million in 1H2020, compared to $5.4 million in 1H2019. This increase was due to a combination of growth in our online and wholesale channels, primarily caused by an increase in sales volume. Products introduced after 1H2019, including Vanilla Creamer, Original with Functional Mushrooms Creamer, Hot Chocolate with Functional Mushrooms, Organic Peruvian Coffee with Functional Mushrooms and Liquid Creamers, accounted for $1.4 million of gross sales in 1H2020. Year-over-year gross sales growth in existing products accounted for $5.2 million of the increase in gross sales in 1H2020 compared to 1H2019. During 1H2020, 30% of all online orders were repeat orders, compared to 35% in 1H2019, and 31% of our direct website net sales came from subscription programs, compared to 30% in 1H2019.

Cost of Goods Sold

 

    

Three months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Cost of Goods Sold

   $ (4,285,128   $ (1,804,956   $ (2,480,172     137%  

Cost of goods sold increased by $2.5 million in Q2 2020 to $4.3 million from $1.8 million in Q2 2019, primarily due to sales growth in the 2020 period and elevated air shipping costs for additional raw materials in response to an unanticipated increase in demand associated with COVID-19.

 

    

Six months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Cost of Goods Sold

   $ (7,650,736   $ (3,269,325   $ (4,381,411     134%  

Cost of goods sold increased by $4.4 million in 1H2020 to $7.7 million from $3.3 million in 1H2019, primarily due to sales growth in the 2020 period and elevated air shipping costs for additional raw materials in response to an unanticipated increase in demand associated with COVID-19.

Gross Profit

 

    

Three months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Gross Profit

   $  1,323,702   $  1,149,234     $    174,468       15%  

Gross profit increased by $174 thousand in Q2 2020 to $1.3 million from $1.1 million in Q2 2019, primarily due to sales growth in Q2 2020, partially offset by a decrease in gross margins. Gross margin decreased to 23.6% in Q2 2020 compared to 38.9% in Q2 2019, primarily due to elevated air shipping costs for additional raw materials in response to an unanticipated increase in demand associated with COVID-19, disposal costs related to the initial production and distribution of our new liquid creamer product line, and launch of a free shipping initiative for direct online purchases made on Lairdsuperfood.com.

 

    

Six months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Gross Profit

   $  3,441,319     $  2,175,982     $  1,265,337       58%  

 

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Gross profit increased by $1.2 million in 1H2020 to $3.4 million from $2.2 million in 1H2019, primarily due to sales growth in 1H2020, partially offset by a decrease in gross margins. Gross margin decreased to 31.0% in 1H2020 compared to 40.0% in 1H2019, primarily due to elevated air shipping costs for additional raw materials in response to an unanticipated increase in demand associated with COVID-19, disposal costs related to the initial production and distribution of our new liquid creamer product line, and launch of a free shipping initiative for direct online purchases made on Lairdsuperfood.com.

Operating Expenses

 

    

Three months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Operating Expenses

        

General and Administrative

   $  1,832,442     $  1,426,954     $    405,488       28%  

Research and Development

     117,796       42,866       74,930       175%  

Sales and Marketing

     2,395,701       2,018,646       377,055       19%  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

   $ 4,345,939     $ 3,488,466     $ 857,473       25%  
  

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expense increased by $405 thousand in Q2 2020 to $1.8 million from $1.4 million in Q2 2019, primarily due to increased payroll expenses, increased professional fees and an increase in asset impairment charges, partially offset by a decrease in stock-based compensation.

Research and product development expense increased by $75 thousand to $118 thousand in Q2 2020 from $43 thousand in Q2 20219, primarily due to increased product development efforts and payroll expenses.

Sales and marketing expense increased by $377 thousand in Q2 2020 to $2.4 million from $2.0 million in Q2 2019, primarily due to increased advertising expenses.

 

    

Six months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Operating Expenses

        

General and Administrative

   $  3,432,012     $  2,333,499     $  1,098,513       47%  

Research and Development

     261,111       76,435       184,676       242%  

Sales and Marketing

     4,788,517       3,880,220       908,297       23%  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

   $ 8,481,640     $ 6,290,154     $ 2,191,486       35%  
  

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expense increased by $1.1 million in 1H2020 to $3.4 million from $2.3 million in 1H2019, primarily due to increased payroll expenses, increased professional fees, and an increase in asset impairment charges.

Research and product development expense increased by $185 thousand to $261 thousand in 1H2020 from $76 thousand in 1H20219, primarily due to increased product development efforts and payroll expenses.

Sales and marketing expense increased by $908 thousand in 1H2020 to $4.8 million from $3.9 million in 1H2019, primarily due to increased advertising, payroll and stock-based compensation expenses.

 

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Other Income

 

    

Three months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Other income

   $ 15,847   $  88,047     $  (72,200     -82%  

Other income (expense) is composed of interest income, gain on sale of available-for-sale securities, and grant income. Interest income, primarily related to dividend and interest income on investment securities available-for-sale, decreased to $8 thousand in Q2 2020 compared to $38 thousand in Q2 2019 due to decreased investment balances. Gain on the sale of available-for-sale securities was $8 thousand in Q2 2020 compared from $0 in Q2 2019. Grant income, primarily related to conversion of a forgivable loan with Deschutes County into a grant, decreased to $0 in Q2 2020 compared from $50 thousand in Q2 2019 due to timing of forgiveness.

 

    

Six months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Other income

   $ 38,701     $  142,729     $ (104,028     -73%  

Interest income, primarily related to dividend and interest income on investment securities available-for-sale, decreased to $31 thousand in 1H2020 compared to $93 thousand in 1H2019 due to decreased investment balances. Gain on the sale of available-for-sale securities was $8 thousand in 1H2020 compared from $0 in 1H2019. Grant income, primarily related to conversion of a forgivable loan with Deschutes County into a grant, decreased to $0 in 1H2020 compared from $50 thousand in 1H2019 due to timing of forgiveness.

Benefit from Income Taxes

 

     Three months ended
June 30,
    2020 v. 2019 Change  
     2020     2019     $     %  

Benefit from Income Taxes

   $  -       $  -       $  -         -    

Benefit from Income Taxes remained at $0 in Q2 2020 and Q2 2019, as we maintain a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses or benefits for the foreseeable future.

 

    

Six months ended

June 30,

    2020 v. 2019 Change  
     2020     2019     $     %  

Benefit from Income Taxes

   $  -       $  -       $  -         -    

Benefit from Income Taxes remained at $0 in 1H2020 and 1H2019, as we maintain a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses or benefits for the foreseeable future.

 

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Comparison of the years ended December 31, 2019 (“FY2019”) and December 31, 2018 (“FY2018”)

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

 

     For the years ended
December 31
   
Change
    %
Change
 
     2019     2018  

Sales, net

   $ 13,103,728     $ 8,291,082     $ 4,812,646       58

Cost of goods sold

     (8,019,094     (5,628,122     (2,390,972     42
  

 

 

   

 

 

   

 

 

   

Gross profit

     5,084,634       2,662,960       2,421,674       91

Gross margin

     38.8     32.1    

General and administrative expenses

     5,201,184       5,826,035       (624,851     -11

Research and product development

     324,284       119,487       204,797       171

Sales and marketing

     8,311,137       5,146,934       3,164,203       61
  

 

 

   

 

 

   

 

 

   

Total expenses

     13,836,605       11,092,456       2,744,149       25

Operating loss

     (8,751,971     (8,429,496     (322,475     4

Other income (expense)

     248,023       (29,940     277,963       928
  

 

 

   

 

 

   

 

 

   

Loss before income taxes

     (8,503,948     (8,459,436     (44,512     1

Benefit from income taxes

     -         -         -         0
  

 

 

   

 

 

   

 

 

   

Net loss

     (8,503,948     (8,459,436     (44,512     1

Deemed dividend of beneficial conversion feature

     -         (749,998     749,998       100

Deemed contribution from the redemption of preferred stock

     7,448,879       -         7,448,879       100
  

 

 

   

 

 

   

 

 

   

Net loss attributable to Laird Superfood, Inc. common

   $ (1,055,069   $ (9,209,434   $ 8,154,365       89
  

 

 

   

 

 

   

 

 

   

Sales, Net

 

     Twelve months ended
December 31,
    2019 v. 2018 Change
     2019     2018     $     %

Sales, net

   $  13,103,728     $  8,291,082     $  4,812,646     58%

Net sales increased by $4.8 million to $13.1 million in FY2019, compared to $8.3 million in FY2018. This increase was due to a combination of growth in our online and wholesale channels, primarily caused by an increase in sales volume. Products introduced after FY2018, including Vanilla Creamer, Original with Functional Mushrooms Creamer, and Hot Chocolate with Functional Mushrooms, accounted for $335 thousand of gross sales in FY2019. Year-over-year gross sales growth in existing products accounted for $4.5 million of the increase in gross sales in FY2019 compared to FY2018. During FY2019, 34% of all online orders were repeat orders, compared to 41% in FY2018, and 32% of our direct website net sales came from subscription programs, compared to 23% in FY2018.

Cost of Goods Sold

 

     Twelve months ended
December 31,
    2019 v. 2018 Change  
     2019     2018     $     %  

Cost of Goods Sold

   $    8,019,094     $  5,628,122     $  2,390,972       42%  

Cost of goods sold increased by $2.4 million in FY2019 to $8.0 million from $5.6 million in FY2018, primarily due to sales growth in the 2019 period.

 

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Gross Profit

 

     Twelve months ended
December 31,
    2019 v. 2018 Change  
     2019     2018     $     %  

Gross Profit

   $  5,084,634     $  2,662,960     $  2,421,674       91%  

Gross profit increased by $2.4 million in FY2019 to $5.1 million from $2.7 million in FY2018, primarily due to sales growth in FY2019 and an improvement in gross margins. Gross margin increased to 38.8% in FY2019 compared to 32.1% in FY2018, primarily due to an improved ability to broadly leverage cost of goods sold line items with greater sales volumes.

Operating Expenses

 

     Twelve months ended
December 31,
    2019 v. 2018 Change  
     2019     2018     $     %  

Operating Expenses

        

General and Administrative

   $ 5,201,184     $ 5,826,035     $ (624,851     (11%

Research and Product Development

     324,284       119,487       204,797       171%  

Sales and Marketing

     8,311,137       5,146,934       3,164,203       61%  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

   $ 13,836,605     $ 11,092,456     $ 2,744,149       25%  
  

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expense decreased by $625 thousand in FY2019 to $5.2 million from $5.8 million in FY2018, primarily due to reductions in professional fees, which was partially offset by increases in payroll and related stock-based compensation and office expense.

Research and product development expense increased by $205 thousand to $324 thousand in FY2019 from $119 thousand in FY2018, primarily due to increased product development efforts and research and development related payroll expenses.

Sales and marketing expense increased by $3.2 million in FY2019 to $8.3 million from $5.1 million in FY2018, primarily due to a substantial increase in online marketing spend, as well as increases in sales and marketing payroll expenses and stock-based compensation.

Other (Expense) Income

 

     Twelve months ended
December 31,
    2019 v. 2018 Change  
     2019     2018             $                     %          

Other (expense) income

   $      248,023     $     (29,940   $    277,963       928

Other (expense) income is composed of interest income and interest expense. Interest income, primarily related to dividend and interest income on investment securities available for sale, increased to $239 thousand in FY2019 compared to $18 thousand in FY2018 due to increased investment balances. Interest expense, consisting primarily of interest related to our additional rent owed to our landlord for landlord improvements, remained relatively flat year-over year, incurring $49 thousand in FY2019 and $48 thousand in FY2018.

Benefit from Income Taxes

 

     Twelve months ended
December 31,
    2019 v. 2018 Change  
     2019     2018     $     %  

Benefit from Income Taxes

   $  -       $  -       $  -         -  %  

 

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Benefit from income taxes remained at $0 in FY2019 and FY2018, as we maintain a full valuation allowance related to our net deferred tax assets, primarily due to our historical net loss position. Due to our history of operating losses and expectation of future operating losses, we do not expect any significant income tax expenses or benefits for the foreseeable future.

Quarterly Results of Operations

The following tables summarize our historical unaudited statements of operations data for each of the four quarters in the years ended December 31, 2019 and 2018 and the quarters ended March 31, 2020 and June 30, 2020. The quarterly information has been prepared on the same basis as the audited financial statements and, in the opinion of management, reflects all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position for the periods presented. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our financial statements and related notes included elsewhere in this prospectus.

 

    2020
(unaudited)
 
    June 30      March 31     Two Quarters  

Statement of Operations Data:

      

Sales, net

  $ 5,608,830      $ 5,483,225     $ 11,092,055  

Cost of goods sold

    (4,285,128      (3,365,608     (7,650,736
 

 

 

    

 

 

   

 

 

 

Gross profit

    1,323,702        2,117,617       3,441,319  

Operating expenses:

      

General and administrative

    1,832,442        1,599,570       3,432,012  

Research and product development

    117,796        143,315       261,111  

Sales and marketing

    2,395,701        2,392,816       4,788,517  
 

 

 

    

 

 

   

 

 

 

Total operating expenses

    4,345,939        4,135,701       8,481,640  
 

 

 

    

 

 

   

 

 

 

Operating loss

    (3,022,237      (2,018,084     (5,040,321

Other income

    15,847        22,854       38,701  
 

 

 

    

 

 

   

 

 

 

Net loss

  $ (3,006,390    $ (1,995,230   $ (5,001,620

Less deemed dividend of beneficial conversion feature

    (825,366      -         (825,366

Less deemed dividend on warrant discount

    (179,427      -         (179,427
 

 

 

    

 

 

   

 

 

 

Net loss attributable to Laird Superfood, Inc. common stockholders

  $ (4,011,183    $ (1,995,230   $ (6,006,413
 

 

 

    

 

 

   

 

 

 

Net income (loss) per share, basic and diluted

  $ (0.93    $ (0.47   $ (1.40

Shares used in computing net loss per share, basic and diluted

    4,325,265        4,281,346       4,303,305  

 

     2019
(unaudited)
 
     December 31     September 30     June 30     March 31     Four
Quarters
 

Statement of Operations Data:

          

Sales, net

   $ 4,171,086     $ 3,487,335     $ 2,954,190     $ 2,491,117     $ 13,103,728  

Cost of goods sold

     (2,722,605     (2,026,930     (1,804,956     (1,464,603     (8,019,094
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,448,481       1,460,405       1,149,234       1,026,514       5,084,634  

 

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    2019
(unaudited)
 
    December 31     September 30     June 30     March 31     Four
Quarters
 

Operating expenses:

         

General and administrative

    1,491,383       1,376,302       1,426,954       906,545       5,201,184  

Research and product development

    137,872       109,978       42,866       33,568       324,284  

Sales and marketing

    2,045,841       2,385,080       2,018,646       1,861,570       8,311,137  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    3,675,096       3,871,360       3,488,466       2,801,683       13,836,605  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (2,226,615     (2,410,955     (2,339,232     (1,775,169     (8,751,971

Other (expense) income

    67,519       37,773       88,047       54,684       248,023  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (2,159,096   $ (2,373,182   $ (2,251,185   $ (1,720,485   $ (8,503,948

Deemed contribution from the redemption of preferred stock

  $ 7,448,879       -         -         -       $ 7,448,879  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Laird Superfood, Inc. common stockholders

  $ 5,289,783     $ (2,373,182   $ (2,251,185   $ (1,720,485   $ (1,055,069
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share, basic

  $ 1.31     $ (0.66   $ (0.64   $ (0.49  

Shares used in computing net loss per share, basic

    4,045,056       3,592,735       3,520,338       3,509,009    

Net income (loss) per share, diluted

  $ 0.96     $ (0.66   $ (0.64   $ (0.49  

Shares used in computing net loss per share, diluted

    5,532,032       3,592,735       3,520,338       3,509,009    

 

    2018  
    (unaudited)  
    December 31     September 30     June 30     March 31     Four
Quarters
 

Statement of Operations Data:

         

Sales, net

  $ 2,183,527     $ 2,160,202     $ 2,175,641     $ 1,771,712     $ 8,291,082  

Cost of goods sold

    (1,391,263     (1,383,967     (1,606,737     (1,246,155     (5,628,122
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    792,264       776,235       568,904       525,557       2,662,960  

Operating expenses:

         

General and administrative

    3,292,994       1,064,968       954,656       513,417       5,826,035  

Research and product development

    30,588       31,300       27,722       29,877       119,487  

Sales and marketing

    1,320,508       1,170,879       1,346,043       1,309,504       5,146,934  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    4,644,090       2,267,147       2,328,421       1,852,798       11,092,456  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (3,851,826     (1,490,912     (1,759,517     (1,327,241     (8,429,496

Other (expense) income

    9,981       (14,766     (15,670     (9,485     (29,940
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (3,841,845   $ (1,505,678   $ (1,775,187   $ (1,336,726   $ (8,459,436

Less deemed dividend of beneficial conversion feature amortization

    (749,998     -         -         -         (749,998
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Laird Superfood, Inc. common stockholders

  $ (4,591,843   $ (1,505,678   $ (1,775,187   $ (1,336,726   $ (9,209,434
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     2018  
     (unaudited)  
     December 31     September 30     June 30     March 31     Four
Quarters
 

Net income (loss) per share, basic and diluted

   $ (1.27   $ (0.41   $ (0.49   $ (0.41  

Shares used in computing net loss per share, basic and diluted

     3,627,695       3,641,108       3,630,420       3,261,914    

Liquidity and Capital Resources

As of June 30, 2020, we had incurred accumulated net losses of $24.1 million, including operating losses of $5.0 million and $4.0 million for 1H2020 and 1H2019, respectively. As of December 31, 2019, we had incurred accumulated net losses of $19.1 million, including operating losses of $8.5 million and $8.5 million for FY2019 and FY2018, 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, as well as lines of credit and term loans. Our equity financings are summarized as follows:

 

   

we received net proceeds of $6.7 million from the issuance of common stock from inception through December 31, 2017.

 

   

we issued and sold an aggregate of 472,778 shares of our common stock from March 2018 through June 2018 to investors for an aggregate purchase price of $4.1 million.

 

   

we issued and sold an aggregate of 923,670 shares of our Series A preferred stock from November 2018 through December 2018 to investors for an aggregate purchase price of $22.0 million.

 

   

we issued and sold an aggregate of 806,614 shares of our common stock from September 2019 through March 2020 for an aggregate purchase price of $11.7 million.

 

   

we issued and sold an aggregate of 383,142 shares of our Series B-1 preferred stock on April 13, 2020 for an aggregate purchase price of $10.0 million.

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 June 30, 2020, we had $13.1 million of cash-on-hand and investments and $8.4 million of available borrowings under our lines of credit. As of December 31, 2019, we had $6.5 million of cash-on-hand and investments and $7.5 million of available borrowings under our lines of credit. As of June 30, 2020 and December 31, 2019, 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 adjacent to our current buildings 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 our audited financial

 

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statements for FY2019 were issued. 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.

Comparison of the six months ended June 30, 2020 and June 30, 2019

Cash Flows

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

 

     For the six months ended
June 30,
 
     2020     2019  

Cash flows from operating activities

   $ (4,647,005   $ (4,155,862

Cash flows from investing activities

     356,624       (11,542,957

Cash flows from financing activities

     11,835,448       (1,097,284
  

 

 

   

 

 

 

Net change in cash

   $ 7,545,067     $ (16,796,103
  

 

 

   

 

 

 

Cash Flows from Operating Activities

Cash used in operating activities was $4.6 million for 1H2020 as compared to $4.2 million in 1H2019. In 1H2020, we increased inventory levels to ensure we are able to keep up with growing customer demand, with limited disruptions in distributions.

Cash Flows from Investing Activities

Cash provided from investing activities was $357 thousand in 1H2020 as compared to cash used of $11.5 million in 1H2019. Cash inflows during 1H2020 were primarily related to proceeds from maturities and sales of investments available-for-sale, partially offset by purchases of and deposits made for equipment. Cash outflows during 1H2019 primarily related to purchases of investments available-for-sale and purchases of manufacturing equipment.

Cash Flows from Financing Activities

Cash provided by financing activities was $11.8 million in 1H2020 compared to cash used of $1.1 million in 1H2019. Cash inflows in 1H2020 primarily related to a capital transaction of $10.0 million with a private investor, while cash outflows in 1H2019 primarily related to the repurchase of common stock.

Comparison of the twelve months ended December 31, 2019 and December 31, 2018

Cash Flows

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

 

     For the twelve months ended
December 31,
 
     2019     2018  

Cash flows from operating activities

   $ (9,440,895   $ (9,455,757

Cash flows from investing activities

     (7,924,099     (717,657

Cash flows from financing activities

     1,029,080       24,170,440  
  

 

 

   

 

 

 

Net change in cash

   $ (16,335,914   $   13,997,026  
  

 

 

   

 

 

 

 

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Cash Flows from Operating Activities

Cash used in operating activities was $9.4 million for FY2019 as compared to $9.5 million in FY2018. In FY2019, we increased inventory levels to ensure we are able to keep up with growing customer demand, with limited disruptions in distributions. In addition, we made significant investments in leasehold improvements to build out production and warehouse facilities to ensure we can continue to scale at the rate of our revenue growth.

Cash Flows from Investing Activities

Cash used in investing activities was $7.9 million in FY2019 as compared to $718 thousand in FY2018. These changes were primarily due to investment in securities available-for-sale, and capital investments in a new manufacturing line to continue to meet increasing consumer demand.

Cash Flows from Financing Activities

Cash provided by financing activities was $1.0 million in FY2019 compared to $24.2 million in FY2018. In FY2018, we executed a capital transaction of $25.0 million with a private investor, with $15.0 million funded at the closing date and an additional $10.0 million to be funded one year following the execution. In FY2019, we negotiated the repurchase of 609,013 shares of Series A-1 preferred stock from a private investor for $7.5 million, or $12.32 per share, and the termination of the private investor’s commitment to fund an additional $10.0 million 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 $15.0 million, 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 $7.4 million, which was included in the net loss available to common stockholders.

Contractual Obligations and Commitments

The following table sets forth the amounts of our significant contractual obligations and commitments with definitive payment terms as of December 31, 2019:

 

Payments Due by Period

   Operating Leases(1)     Note Payable     Total  

2020

   $ 233,047     $ -       $ 233,047  

2021

     237,737       51,000       288,737  

2022

     244,869       -         244,869  

2023

     252,216       -         252,216  

2024

     259,782       -         259,782  

Thereafter

     1,132,122       -         1,132,122  
  

 

 

   

 

 

   

 

 

 
   $           2,359,773     $                  51,000     $           2,410,773  
  

 

 

   

 

 

   

 

 

 

 

(1)

Operating lease obligations related to our manufacturing facility leases, dated March 1, 2018 and December 17, 2018. Operating lease obligations related to our office space are month-to-month in nature, and therefore we have no ongoing contractual obligation.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these 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

 

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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 audited financial statements included elsewhere in this prospectus, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

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.

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 awards, recipients are issued shares of common stock.

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. 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 June 30, 2020, December 31, 2019 and December 31, 2018.

 

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Off-Balance Sheet Arrangements

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.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of June 30, 2020, we had cash and cash equivalents of $8.5 million. We invest our surplus cash in United States Treasury bonds as well as interest-bearing savings and other short-term interest bearing investments from time to time. We have not entered into investments for trading or speculative purposes. Due to the conservative nature of our investment portfolio, which is predicated on capital preservation of investments with short-term maturities, we do not believe a change in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates.

As of June 30, 2020, we had no debt outstanding that is subject to interest rate variability, as our only debt consists of $51,000 outstanding under a forgivable loan with the City of Sisters, Oregon. Therefore, we are not subject to interest rate risk related to debt.

Recent Accounting Pronouncements

See Recently Issued Accounting Pronouncements in Note 1 to our audited financial statements included elsewhere in this prospectus 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.

In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

We may take advantage of these provisions until the end of the fiscal year in which the fifth anniversary of this offering 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.

 

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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.

 

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LETTER FROM PAUL HODGE, OUR CO-FOUNDER AND CHIEF EXECUTIVE OFFICER

Laird Hamilton and I founded Laird Superfood because we believe better food leads to a better world.

Laird has a barn in Kauai, on the banks of the Hanalei river, a straight shot downstream to Kauai’s north shore and the Pacific. His barn is a monument to innovation – inside, in neatly arranged stacks, is experimental watersport equipment, all from the early stages of its development – the first tow-in jet skis, prototype stand up paddleboards, and early-model foil boards, made from spare snowboard bindings bolted to beat up surfboards. The final versions of his early experiments are now ubiquitous and recognizable everywhere.

At the back of his barn, Laird has a coffee bar reflecting the same curiosity and innovation. In 2014, Laird and I were making coffees ahead of a long, tough day in the surf, adding coconut oil and nut-milks, and less conventional additives – things like raw cacao and organic coconut milk powder and fresh turmeric – experimenting with flavors and performance. We were having fun and liked how the coffee made us feel, and we knew we were onto something authentic and new.

I spent the next fourteen months at my ranch in Oregon experimenting with ingredients to finalize the recipe for our original Superfood Creamer. In 2015, we founded Laird Superfood to make great tasting, high-quality, plant-based products that are healthy, convenient, affordable, and available to all, starting with Superfood Creamer.

Since 2015, we have sold approximately two million bags of our creamer — enough to make tens of millions of unique and delicious coffees. We have developed 26 SKUs across our platforms, built a factory in a town of about 2,700 people in central Oregon, where we employ over a hundred people, and our products can now be found in over 5,500 retail doors across the US. Our products can also be found on our website, Lairdsuperfood.com, where we have a subscriber base which has grown at a compound annual growth rate of almost 300% since our subscription program’s inception in 2017. And our work is just getting started. In 2020 we have launched six new SKUs, and plan to continue introducing new, exciting products to our customers.

We have executed our vision with discipline. We vertically integrated our production, direct import many of our ingredients, and have invested in our growth responsibly. We have great respect for our stakeholders, and we have received their trust in return. Our future growth will be based on the strength of our platform, excellence in execution, and disciplined capital allocation. We will invest in growth and scalable infrastructure where returns are attractive.

All food manufacturing has an environmental impact. By focusing on plant-based alternatives, we believe we are part of a movement to reduce the carbon impact of our community’s daily lives. Further, with products like our Hydrate coconut water, we are reducing single-use containers, and taking thousands of tons of freight out of the supply chain by providing a space and weight efficient powdered alternative to refrigerated single serves.

Our current platform is just the beginning. Laird Superfood is a tiny percentage of the $695 billion U.S. grocery market, and occupies the fast-growing subsegment of natural and plant-based foods. Our vision is to grow across grocery store aisles and continually innovate new, plant-based products to add to our customers’ daily ritual.

We believe we are still in the initial stages of our innovative platform, and I, and our team, are committed to growing our brand until it is ubiquitous and recognizable everywhere.

Sincerely,

Paul Hodge

 

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BUSINESS

Our Company

Laird Superfood. Better Food. Better You.

Laird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The Laird Superfood brand is increasingly recognized and trusted by a growing number of consumers. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, and roasted and instant coffees, teas and hot chocolate. Over time, Laird Superfood plans to aggressively and strategically grow revenues by further penetrating the multi-billion-dollar market opportunity presented by our current product lines, as well as expanding our platform to include additional products that meet our strict plant-based ingredient criteria to diversify our revenue base and increase Laird Superfood’s total addressable market (“TAM”) opportunity.

Laird Superfood was founded in 2015 by friends and surfing partners, Laird Hamilton and Paul Hodge. Mr. Hamilton is one of the best-known big wave surfers in the world and well respected for his innovation in many board sports. Mr. Hodge is an entrepreneur who has built numerous environmentally and socially conscious companies in the solar, home technology, electric transportation and sporting industries. Mr. Hamilton has long sought different ways to derive the maximum possible energy from natural food sources to carry him through some of the most grueling surf and exercise sessions in the world. With the need to stay in the water for four to six hours per session, Mr. Hamilton experimented with blends of espresso and a variety of natural fats, such as coconut oil, to create beverages designed to provide stable and long-lasting sources of energy.

After years of development and personal trial, Mr. Hamilton created a plant-based recipe consisting of coconut-based ingredients and Aquamin, a mineral rich, calcified sea algae harvested off the coast of Iceland. Mr. Hamilton found these special ingredients provided him with an extended boost of energy beyond a traditional cup of coffee. With the help of several industry veterans, Mr. Hodge spent fourteen months testing over seventy different formulations searching for a recipe that could be produced in a cost-effective and scalable manner in order to bring affordable and convenient consumption to consumers. In July 2015, Laird Superfood launched its first product, the Original Superfood Creamer.

Gabrielle Reece, who serves as our Chief Brand Ambassador and is married to Mr. Hamilton, also contributed actively to developing Laird Superfood’s debut products. Ms. Reece is a professional athlete, media personality and Nike’s first female spokeswoman. Her passion for healthy living and fitness expertise make her an influential voice in the world of health and wellness, particularly with a female audience. Mr. Hamilton, Mr. Hodge and Ms. Reece are committed to optimizing nutrition to improve consumer health and achieve peak performance through a platform of Laird Superfood products that taste great and are accessible to the general public.

Laird Superfood is driven by the mantra of “Better Food, Better You.” To support this vision, we plan to introduce products that fuel consumers from sunrise to sunset, as part of Laird Superfood’s “Daily Ritual.”

 

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LOGO

As a result of growing consumer demand for Laird Superfood products and the continued expansion of our omnichannel distribution strategy, our net sales have grown from $568 thousand in 2016 to $13.1 million in 2019 and $11.1 million in the first six months of 2020, representing an annualized compound annual growth rate of approximately 185%. During the same period, our gross margins have expanded from 24.8% in 2016 to 38.8% in 2019 and 31.0% in the first six months of 2020, which highlights the inherent operating leverage built into our vertically integrated business model. We believe additional gross margin expansion can be achieved via factory efficiencies and overhead absorption.

Our Market Opportunity in the Evolving Food and Beverage Industry

Laird Superfood participates in what the U.S. Census Bureau estimates to be a $695 billion grocery market as of 2019, which is the second largest retail market after the automobile industry.

 

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Laird Superfood is specifically focused on the fastest growing sub-segment of the food and beverage market: U.S. Natural, Organic and Functional Food and Beverages. According to the Nutrition Business Journal, in 2018, U.S. Natural, Organic and Functional Food and Beverages sales were approximately $152 billion and grew 6.6% from the prior year, which was faster than the 4.0% growth in the overall food and beverage industry according to the U.S. Census Bureau. Further, according to the Nutrition Business Journal, during the same period, third-party and direct e-commerce sales represented two of the four fastest growing channels for U.S. Natural, Organic and Functional Food and Beverages sales, which bodes well for Laird Superfood due to our strong online presence and omnichannel expansion strategy.

Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients. There is also increasing recognition of the environmental impact of animal-based products. This has led to significant growth in plant-based foods and beverages. Per the Plant-Based Foods Association, U.S. retail sales of plant-based foods increased 11% from 2018 to 2019, reaching a market value of $4.5 billion, compared to increases of 4% and 7% in the general grocery and natural food categories, respectively. Among categories of plant-based foods, plant based creamers was the highest growing category, experiencing 40% growth for the twelve month period ended April 2019 compared to growth of only 12% for dairy-based creamers.

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. We believe an authentic and trusted brand is the strongest barrier to entry and a sustainable source of differentiation in the CPG industry. We also believe a strong brand is a valuable platform that can be leveraged to expand beyond our current markets to achieve relevance across multiple grocery aisles, online and a wide array of other relevant points of distribution. While the barriers to entry for launching a food product in the CPG industry have fallen in recent years as a result of unlimited shelf space on the internet and targeted online marketing, the barriers to building an internationally recognized and trusted brand relevant to today’s consumer remain high.

Our Competitive Strengths

We believe the following strengths differentiate Laird Superfood and create long-term, sustainable competitive advantages.

An Emerging Platform Within the Rapidly Expanding Plant-Based Natural Foods Industry

Over the near and intermediate term, Laird Superfood is highly focused on maximizing revenue growth by further penetrating the multi-billion dollar market opportunity presented by our current product lines. However, we believe the larger long-term opportunity lies in building Laird Superfood into a unique platform within the natural foods industry, which is currently dominated by single-product companies. The core tenets of this platform approach are strengthening our authentic and trusted brand name, growing our expansive omnichannel distribution strategy and the introduction of a constant flow of new products that align with our core ethos. This platform provides opportunities for continual expansion of our TAM to allow long-duration growth, sustained differentiation of our brand, product diversification and leveraging our core strengths and operating costs to increase profit margins.

An Authentic and Trusted Brand Name

An authentic and trusted brand is one of the strongest long-term barriers to entry and sources of sustained differentiation in the consumer products industry. Since inception, Laird Superfood has invested heavily in building a trusted brand that consumers immediately identify as authentic, plant-based, nutrient dense and functional. Along with more traditional methods of brand-building, we have effectively

 

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harnessed the authentic lifestyle of Laird Hamilton and Gabrielle Reece, both of whom have well-earned reputations for being on the cutting edge of fitness and nutrition. Our goal is to make Laird Superfood the choice for customers searching for nutrient dense, functional foods at a reasonable price. Our target market extends well beyond elite athletes into the mass market due to our recognition that Laird Superfood products must not only be natural, functional and nutrient-dense, they must also taste great and be affordable to provide access to all consumers.

Balanced and Highly Differentiated Omnichannel Distribution Strategy

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

Our online business is two pronged and consists of Lairdsuperfood.com and Amazon.com. In 2019 and the first six months of 2020, the online business made up 58.4% and 57.1% of our net sales, respectively. Our website sells all of our SKUs with the exception of our refrigerated liquid Superfood Creamer. Lairdsuperfood.com serves as a platform to launch new products prior to investing in a wholesale launch and appeals to our “hard core” customers. Lairdsuperfood.com is a proprietary distribution channel that is able to drive user engagement, education and provides feedback for future product development as well as allows for online-only sales of trial products, prior to the investment necessary to launch in wholesale. In addition to our own website, we sell a variety of our products on Amazon.com.

Lairdsuperfood.com is a platform that provides an authentic brand experience for our customers that drives engagement and provides feedback for future product development, while generating highly attractive margins. We view our growing proprietary database of customers ordering directly from our website as a strategic asset, as it enhances our ability to develop a long-term relationship with these customers. Content on our 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 approximately two-thirds of Lairdsuperfood.com sales during the first six months of 2020. This direct relationship also allows us to market and cross-sell new products more efficiently, which should lead to higher customer lifetime values. Finally, Lairdsuperfood.com serves as the cornerstone of our subscription business which has shown consistent revenue growth since its inception in May 2017 and has increased its individual subscriber base at a compound annual growth rate of 297% through June 2020.

When combining our Lairdsuperfood.com and Amazon.com online channels, we achieved a three-year cash Lifetime Value to Customer Acquisition Cost (“LTV/CAC”) ratio of 4.1x in 2018, 3.7x in 2019 and 3.5x in the first six months of 2020. Our three-year cash LTV is calculated as the net cash contribution for online customers acquired at least three years ago divided by the number of new online customers acquired during that period. Net cash contribution is inclusive of online net sales, less online related raw materials, packaging, shipping, freight and Amazon.com selling fees. CAC is estimated as the amount spent in the respective calendar year to acquire new online customers, divided by the number of new online customers acquired during the same period. CAC is inclusive of advertising, marketing, and payroll costs specific to online acquisition channels.

 

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Since inception, we have witnessed strong retention rates in our online business and have active customers across every single monthly cohort in our Lairdsuperfood.com business going back to November 2015. A defining characteristic of our users is that over time their retention rates rise. From inception through June 2020, 30.9% of the consumers that try our products order a second time. Once customers are on their fifth order, our retention rate is 75.5% and by their tenth order our retention rate is 86.9%. The customers exhibiting these order patterns become our “power users” and they drive the recurring revenue nature of our portfolio of products.

Subscriptions also play an important role in driving retention rates for our direct online business and in 2019 and the first six months of 2020 subscriptions made up 32% and 31% of our direct online net sales, respectively. Since the start of our subscription program in May 2017 we have grown our subscriber base at a compound annual growth rate of 297% through June 2020. In addition to subscriptions, Lairdsuperfood.com has a high percentage of repeat users. In 2018 and 2019, 64% and 65% of the net sales at Lairdsuperfood.com came from either subscribers or repeat users, and during the first six months of 2020, 61% of the net sales at Lairdsuperfood.com came from either subscribers or repeat users.

Our wholesale business addresses the $695 billion grocery industry, specifically the $152 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. In 2019, wholesale made up 40.4% of our net sales, and in the first six months of 2020, wholesale made up 41.0% of our net sales. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores. We currently estimate our products are in over 5,500 retail door locations across the United States 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. We have invested in a national sales team, as well as an internal salesforce and customer service team. We believe the sales personnel and support staff currently in place are sufficient to fully penetrate the US wholesale market.

Our food service business addresses a broad set of customers including, but not limited to, local and regional coffee shops, juice bars, corporate offices, hotels, restaurants, college campuses, professional sports teams and gyms. In 2019 and the first six months of 2020, food service was 1.2% and 1.9% of our net sales, respectively. Though currently a small percentage of net sales, we believe the market opportunity for our food service business is very large, providing us with the ability to further diversify our customer base and increase our TAM. To strongly differentiate our food service offerings, Laird Superfood has worked with Bunn, one of the largest coffee capital equipment manufacturers in the United States, to create the Laird Superfood Crescendo®, a plant-based latte machine that is a convenient solution for a variety of office, gym, restaurant, and other food service environments. The average cash-on-cash pay-back period for food service customers that purchase a Crescendo® for retail use with our products is less than twelve months. Since the Laird Superfood Crescendo® was debuted in March 2019, we have built an installed base of 34 units as of June 30, 2020.

Proven Efficiency in Marketing Spend to Drive Growth and Acquire New Customers

Throughout our history, Laird Superfood has maintained a disciplined, data-driven and returns-based focus on the deployment of marketing dollars to build our brand and acquire new customers. In our view, marketing dollars must be deployed efficiently to sustain growth over the long-term and eventually move Laird Superfood towards profitability. We have placed a strong focus on generating free and organic traffic for our website and social media channels, expanding our proprietary database of customers, growing subscriptions and acquiring customers from a wide variety of channels. These efforts are aimed at structurally reducing our dependence on the least proprietary

 

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and most competitive sources of online customer acquisition. Social media channels, in particular, are useful for launching new products and introducing promotions, as are the social media presences of Mr. Hamilton and Ms. Reece, and certain other influential persons who support the brand in their social media. As a result, Laird Superfood has historically acquired new customers at an attractive cost relative to their projected lifetime value. Our three-year cash LTV/CAC ratio for new online customers was 4.1x as of December 31, 2018, 3.7x as of December 31, 2019 and 3.5x as of June 30, 2020. We expect to remain disciplined in our customer acquisition efforts going forward and have plans to significantly expand the number of channels through which we will attempt to find additional sources of low-cost customer acquisition opportunities.

Vertically Integrated Business Model

Since inception, Laird Superfood has focused on building a vertically integrated business model. The core of this strategy is our highly efficient manufacturing process, which enables rapid expansion of production capacity, provides fixed-cost leverage on increased volumes and optimizes our ability to control quality.

We produce our powdered creamers and hydration products on automated equipment. At this stage of revenue contribution, we have elected to co-pack our liquid creamers and beverage enhancing supplements. In addition, we externally source our whole bean and ground coffee. We produce 17 of our 26 SKUs in house as of June 30, 2020, with only nine SKUs consistently co-packed. When we refer to “SKUs” in this prospectus, we are referring to flavor count. If a flavor is available in more than one size, we are referring to all sizes collectively as one SKU. Based on our current projections, we believe our existing footprint, upon installation of manufacturing equipment which is anticipated to be materially paid for in the third quarter of 2020, will support $100 million in annual gross sales of internally produced powdered products without a need for a material increase in capital expenditures. This provides us with substantial current excess manufacturing capacity to enable future growth in a capital efficient manner.

In addition to manufacturing capabilities, we have internalized branding, design, packaging, digital marketing, customer service and data analytic capabilities, along with finance, legal, research and development and human resource functions. Our broad in-house capabilities and extensive manufacturing capacity are expected to enable significant fixed-cost leverage going forward in manufacturing, as well as most other operating expense line items.

Laird Superfood sources its raw materials from a variety of suppliers located both inside and outside the United States. We have a supplier code of conduct for the ethical sourcing of raw materials from within and outside the United States that we provide to our suppliers as part of their on-boarding process.

Raw materials are shipped to our production facility in Sisters, Oregon where they are stored in our warehouse and production facility. For products we self-manufacture, these raw materials are then mixed and packaged into finished goods. Finished goods are then warehoused and shipped out of Sisters to both retail and wholesale customers, as well as distributors across the country. A minority of our products are manufactured and packaged offsite. The finished goods are then shipped by our co-packers to our warehouse in Sisters where we then ship them to end-customers.

Laird Superfood’s research and development is driven by the energy and beliefs of Laird Hamilton and Gabrielle Reece, who are involved in all our product development. We are supported by three full-time research and development staff and have an in-house lab in our facility in Sisters, Oregon, where we develop trial products. In the twelve months ended June 30, 2020, we launched ten SKUs, and we have launched or expect to launch up to nine SKUs in the twelve months ended June 30, 2021, including three flavors of pili nuts; Superfood Creamer liquid coffee creamer with Turmeric; Orange Guava Hydrate; Protein; Daily Greens; Immune beverage enhancing supplements; and Chai InstaFuel.

 

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Targeting Top-Tier Food Industry Gross Margins

Strong gross margins provide Laird Superfood with a sustainable competitive advantage, as these gross profit dollars can be used to aggressively invest in growth initiatives to further differentiate our brand, expand our revenue opportunity and increasingly cover fixed costs as we move toward profitability. Laird Superfood has demonstrated gross margin expansion throughout most of our history as we have leveraged our manufacturing infrastructure over higher volumes. Our vertically integrated model is expected to enable gross margins to continue to move toward levels above food industry averages, as production volumes increase.

Investor Relationship with Danone Manifesto Ventures

In April 2020, Danone Manifesto Ventures, PBC invested $10 million in Laird Superfood. Danone Manifesto Ventures is the investment arm of Danone S.A., one of the largest and most successful consumer product companies in the world and a global leader in plant-based products with which we share a vision of a healthy and sustainable future of food. We believe Danone Manifesto Ventures will provide Laird Superfood with valuable CPG guidance, best practices and industry-specific expertise to help us capitalize on our growth opportunity. We believe this investor relationship is an important strategic fit for Laird Superfood, as it allows us to maintain our independence, agility, entrepreneurial spirit and mission, while benefiting from the manufacturing, marketing and operational experience of a world-class organization.

Focus on Environmental, Social and Governance (ESG) Best Practices

Laird Superfood’s founders strongly believe we should seek to drive value for all relevant stakeholders, including customers, employees, community, shareholders and the broader environment. This philosophy of “Ohana” is particularly important to Laird Hamilton and Gabrielle Reece and permeates our culture. Laird Superfood is conscientious in its sourcing of raw materials, the carbon-benefits of facilitating plant-based alternatives, the impact of our operations on the environment and our community, and providing products that discourage the culture of single-use plastics.

Our Growth Strategy

We believe there is great opportunity to leverage the strength of our existing products and build Laird Superfood into one of the world’s preeminent natural food brands. Consumers are increasingly incorporating natural alternatives into their diet. However, there are limited national natural food brands with the name recognition of legacy brands in traditional center-of-the-store grocery aisles. Laird Superfood is seeking to build a high level of brand recognition, as well as develop a trust and understanding with consumers that, regardless of category, any product labeled Laird Superfood will taste great and maintain a high-quality ingredient set. That is the heart of our platform strategy. Our primary growth strategies are as follows:

Open-Ended and Long Duration Growth Opportunity in the Enormous Grocery Market

At $695 billion, the U.S. grocery market is one of the largest retail end-markets in the world. Laird Superfood’s strategy is to maximize penetration of this opportunity through a variety of avenues, including growing brand trust and recognition, significantly expanding our grocery distribution footprint to multiples of our current level of 5,500, driving shelf velocity through an acceleration of online and offline advertising and introducing new products to expand our store footprint. According to SPINS, as of June 30, 2020, we have achieved an All Commodity Volume (ACV) of 48.18% in the natural enhanced retailer channel, up from 19.87% as of June 30, 2019. In the conventional grocery channel, we estimate we have achieved less than 10% of ACV.

 

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Exposure to Plant-Based, Functional and Natural Foods Portions of Grocery Market

Within the grocery category, there is an ongoing secular shift from highly processed legacy brands that demonstrate little nutritional benefit to natural, nutrient-dense, functional and plant-based alternatives. We expect the shift in consumer tastes driving the growth of natural and plant-based alternatives will continue throughout the foreseeable future as consumers become better educated on nutrition and focus on the health and wellness of themselves, their families and the environment. There is also clear evidence that an increasing number of natural and plant-based products in stores are moving beyond the natural and specialty segments and into conventional grocery stores. The continuation of these trends should benefit Laird Superfood as it seeks to penetrate the very large overall grocery market.

Business Model Characterized by Repeat and Recurring Revenues

Because the consumption of coffee, creamers and hydration products is a daily ritual for many consumers, there is a natural and frequent repeat usage of Laird Superfood products among large portions of our customer base. For this reason, Laird Superfood has always enjoyed a meaningful base of recurring revenues due to repeat orders by its consumers and wholesale partners. Growing this base of recurring revenues is a strong focus of Laird Superfood as it evaluates new product development opportunities, acquisitions and marketing strategies.

In 2019 and for the first six months of 2020, subscriptions and repeat customers made up 65% and 61% of Lairdsuperfood.com net sales, respectively, even while aggressively growing new customers during these periods. We have also grown subscriptions on Lairdsuperfood.com at a compound annual growth rate of 315% from inception through December 31, 2019 and 297% through June 30, 2020. Further, we view our wholesale business as highly recurring due to the high retention rate of our largest wholesale customers who remain pleased with the strong sell through of our products. The recurring nature of our revenues provides us with confidence in the sustainability of growth over a long period of time. Not only do recurring revenues provide a cushion during downturns, but they make it much easier to achieve sustained and rapid revenue growth due to an ever-growing underlying base of sales.

Resiliency of Recurring Revenues and Business Model During the COVID-19 Pandemic

Though Laird Superfood’s revenues have proven to be highly recurring since our inception, there was some concern our products would be viewed as premium and more discretionary by consumers during an economic downturn. However, the quarter ended June 30, 2020 resulted in the strongest quarterly revenue in the history of Laird Superfood, evidencing the resiliency of our brand in times of economic uncertainty. Early indications suggest consumers continued to drink our coffee, use our creamers and put an even greater emphasis on their own food and supplement choices during the COVID-19 pandemic. If there was a trade-down effect, it appears consumers may have increased their at-home consumption relative to purchases at traditional coffee shops. On a per-serving basis, a home-brewed cup of coffee using Laird Superfood creamer is substantially less expensive than a premium blend at most coffee shops. The performance of Laird Superfood during this extremely difficult period provides us with even greater confidence in the recurring nature of our business, the efficacy of our omnichannel sales model, and the elasticity of our vertically integrated capabilities when facing spiking demand, even during otherwise challenging conditions. Management continues to monitor the evolving situation, and Laird Superfood intends to follow the advice of public health authorities and adhere to government regulations with respect to COVID-19 as they develop, which may result in reduced hours at or closure of our production facility.

Continued Expansion of Distribution Footprint

Based on our estimate of what wholesale penetration for a leading CPG brand should be at maturity, we believe Laird Superfood’s wholesale distribution footprint should eventually be multiples of its

 

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current size. Currently, our products are marketed and sold through a diverse set of physical retail and online channels, including grocery chains, club stores, specialty and natural food outlets, coffee shops, juice bars, gyms, restaurants, hospitality venues, corporate workplaces, Lairdsuperfood.com and Amazon.com. Maximizing potential distribution will be a key growth driver for Laird Superfood and our goal is to expand distribution so that our products are available wherever our customers choose to shop, whether it be a retail store, food service environment or directly online. While expanding distribution, we are simultaneously increasing our brand awareness through an extensive program of online and offline marketing initiatives to accelerate the sell-through velocity of our products once they reach the shelves of our wholesale partners.

Maximize Market Penetration of Existing Product Lines

Laird Superfood’s existing creamer, hydration and beverage enhancing supplement, and instant and roasted coffee categories represent a multi-billion-dollar TAM. We believe simply penetrating these core markets with our differentiated product lines provides Laird Superfood with a large and long-duration growth opportunity. In the near-term, Laird Superfood will focus on growing share within these categories. This is particularly true within the coffee creamer market, where plant-based products are driving category growth and Laird Superfood Creamer products are exhibiting very strong performance. We will continue to drive growth of our Superfood Creamers through distribution expansion and increased marketing and advertising to drive brand recognition and shelf velocity. We will also attempt to leverage our new and existing wholesale relationships to gain additional shelf space for our full suite of existing products.

New Product Development

While Laird Superfood’s current product lines are growing strongly and address multi-billion-dollar market opportunities with differentiated products, we intend to enhance our growth by launching new products over time, including planned launches in 2020. In the first and second quarters of 2020, we launched three flavors of our liquid Superfood Creamer and our ground coffee with functional mushrooms product. In the third quarter of 2020, we launched an additional flavor of our liquid Superfood Creamer, and we expect to launch an immune supplement beverage mix, a plant-based protein powder, a powdered greens beverage mix, and a packaged pili nuts snack product before the end of 2020. These new products have been, and future products will be, developed primarily through internal research and development. We are focused on creating products that conform to our uncompromising brand ethos of great taste, high-quality ingredients, nutritional density and functionality. Additional criteria for new product development include the potential for broad commercial acceptance, size of market opportunity, regulatory compliance issues, manufacturing process, availability and cost of raw materials, shelf-life and expected usage patterns by potential customers.

Laird Superfood’s research and development efforts are enhanced by Laird Hamilton and Gabrielle Reece, who are involved in all aspects of product development, and remain at the forefront of current and future nutritional trends. We also employ a full-time research and development staff and maintain an in-house lab at our facility in Sisters, Oregon. Our new product cadence is rapid, as evidenced by the ten SKUs launched in the twelve months ended June 30, 2020.

From a growth perspective, ongoing new product launches are expected to continually increase our TAM opportunity. Broadening our product line will also serve to diversify our revenue base and reduce exposure to potential competitive intensity in any one category. We expect all new products, whether developed internally or sourced externally, will be branded Laird Superfood and they will expand Laird Superfood’s opportunity to become part of our customer’s daily ritual of food and beverage consumption.

 

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Opportunity for Tuck-In Acquisitions to Supplement Organic Growth and Expand Platform

To date, Laird Superfood’s revenues have been driven solely by organic growth and that will remain our primary focus going forward. However, longer-term, we believe there will be opportunities to expand our TAM and diversify our revenue base through acquisitions. In this scenario, our belief is acquisitions would be of a tuck-in nature and target highly fragmented markets within plant-based foods. All products acquired are expected to be re-branded Laird Superfood and would fit our ethos of great taste, nutrition, all-natural ingredients and functional benefits.

Expected Increases in Gross Margins, Fixed-Cost Leverage and a Capital Efficient Sales and Marketing Strategy Should Allow Earnings to Grow Faster than Sales, Providing a Path to Profitability

While generating topline growth is of primary importance to Laird Superfood, we are also highly focused on growing earnings faster than net sales and achieving profitability within a reasonable period. Multiple aspects of Laird Superfood’s business lead us to believe there is substantial operating leverage that should allow us to achieve profitability. First, our gross margins should expand due to the efficient nature of manufacturing our powdered products, excess capacity in our manufacturing facilities and the ability to leverage fixed costs in our factory over higher volumes. Second, we believe that outside of incremental new expenses associated with being a public company, general and administrative expenses should grow slower than net sales. Finally, we do have modest fixed-cost leverage on our sales and marketing spend, along with a history of disciplined and efficient customer acquisition strategies. Laird Superfood remains committed to a business model focused on not just topline growth, but on steady progress toward profitability.

Our Products

Our authentic and sustainably differentiated plant-based products become part of our customer’s “Daily Ritual”, providing energy and hydration throughout the day, presenting the opportunity to expand a portfolio of plant-based products. As part of our focus on sustainability and a better-for-you “Daily Ritual”, the product categories we have focused on to date are powdered and liquid coffee creamers, hydration and beverage enhancing supplements, and coffee, tea and hot chocolate products.

Our gross sales by product category are reflected below:

 

    Six months ended June 30,     Years ended December 31,  
    2020     2019     2018  
              $                       % of        
        Total        
    $     % of
Total
    $     % of
Total
 

Coffee Creamers

  $ 8,017,868       66.6%     $ 9,330,678       67.8%     $ 5,611,857       68.9%  

Hydration and Beverage Enhancing Supplements

    1,849,298       15.3%       2,022,269       14.7%       956,967       11.7%  

Coffee, Tea, and Hot Chocolate Products

    1,979,141       16.4%       1,930,434       14.0%       1,347,297       16.5%  

Other

    200,262       1.7%       471,097       3.4%       233,024       2.9%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Sales

  $ 12,046,569       100.0%     $ 13,754,478       100.0%     $ 8,149,145       100.0%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquid coffee creamers became available for sale in April 2020 and therefore did not represent any of our 2019 sales results. Liquid coffee creamers represented 2.6% of our gross sales during the first six months of 2020. Hydration and beverage enhancing supplements include sales of Hydrate coconut waters and our two supplement lines, Performance Mushrooms and Activate Daily Jumpstart. Coffee, tea, and hot chocolate products include ground and whole bean coffee, Hot

 

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Chocolate with Functional Mushrooms, and our Instafuel line of just-add-water coffee and tea products. Other products include miscellaneous branded goods, such as coffee mugs, thermoses, t-shirts, and hats.

Coffee Creamers

Laird Superfood is disrupting the three-billion-dollar coffee creamer market with its cornerstone portfolio of Superfood Creamers. According to IRI, the coffee creamer category grew 6.0% in 2019, while Laird Superfood’s creamer business grew 66.3% in 2019.

In July 2015, we introduced the Original Laird Superfood Creamer and since that time have built on the success of that product, introducing several additional flavors. In April 2020, following the success of its powdered creamer franchise, Laird Superfood entered the liquid creamer market, expanding its total addressable market ten-fold to $3 billion. According to IRI, as of 2020 Liquid creamers represent 91% of the creamer market.

Laird Superfood sells eight SKUs of powdered coffee creamers and three SKUs of liquid coffee creamer. Sales of powdered coffee creamer represented 67.8% and 68.9% of our gross sales in 2019 and 2018, respectively, and 66.6% and 67.6% of our gross sales for the first six months of 2020 and 2019, respectively. We expect to continue expanding our Superfood Creamer platform going forward with additional flavors, nutritional profiles, and formulations based on consumer preferences and demand. Such products continue to grow rapidly while demonstrating attractive repeat usage and customer lifetime value characteristics.

The three main benefits and points of differentiation to consumers from our Superfood Creamer products are their taste, limited ingredient set, and their inclusion of plant-based fats. All creamers include Aquamin, a natural source of calcium and trace amounts of 72 other minerals, and all liquid creamers are differentiated by functional mushroom extracts in their ingredient set. Powdered creamers have the further appeal of shelf stability and on-the-go convenience.

The philosophy driving our pricing strategy is accessibility to consumers prioritizing less processed and sustainable foods. Our creamer products, powdered and liquid, are priced typically at $9.95 to $11.95 (for standard 8 ounce bags) and $4.95 to $5.95 (for a 16 ounce carton), respectively.

Powdered Coffee Creamers

Laird Superfood’s Superfood Creamer was originated in powdered form for convenience and sustainability. We have developed eight powdered SKUs: Original Superfood Creamer, Unsweetened Superfood Creamer, Cacao Superfood Creamer, Turmeric Superfood Creamer, seasonal Pumpkin Spice Superfood Creamer, seasonal Chocolate Mint Superfood Creamer, Vanilla Superfood Creamer, and Original Superfood Creamer with Functional Mushrooms. Our powdered coffee creamers have an 18 month shelf life.

Powdered coffee creamers have historically represented a smaller, lower-price-point segment of the coffee creamer market, but we believe our powdered Superfood Creamers are expanding that segment and competing for customers who historically have purchased liquid coffee creamers. Within the powdered coffee creamer space, the U.S. creamer market is led by Nestle, which currently maintains a majority market share with its Coffee-mate product. There is a fragmented market for performance and natural ingredient focused powdered coffee creamers, such as those made by Vital Proteins and Mud/Wtr, however we believe that we are the market leader in this subsegment.

Liquid Coffee Creamers

Our liquid coffee creamers were developed internally based on naturally sourced, delicious and functional ingredients as a new platform to deliver functional mushrooms and Aquamin in an appealing, plant-based creamer. Liquid creamers provide the added benefits of being on the premium

 

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perimeter refrigerated shelf space, as well as a lower price point per unit compared to our bags of powdered Superfood Creamer, with a suggested retail price of $4.95, which we believe is more accessible to customers new to our brand than our powdered products. Liquid coffee creamers became available for sale in April 2020 and therefore did not represent any of our 2019 sales results. Liquid coffee creamers represented 2.6% of our gross sales during the first six months of 2020.

We have developed three liquid SKUs, Original with Functional Mushrooms, Unsweetened with Functional Mushrooms and Vanilla with Functional Mushrooms. We anticipate launching our fourth liquid SKU, Turmeric, in the third quarter of 2020.

Hydration and Beverage Enhancing Supplements

Laird Superfood’s hydration/beverage enhancer portfolio includes our Hydrate coconut water products (five SKUs), our Activate Daily Jumpstart product (one SKU) as well as our Performance Mushroom supplement (one SKU). These products represented 14.7% of our gross sales in 2019 and 15.3% of our gross sales during the first six months of 2020.

The main benefits and points of differentiation to consumers from our Hydrate products are great taste; a limited number of ingredients that provides desired hydration enhancers, such as electrolytes and potassium, and additional attractive trace minerals from Aquamin; no artificial sugars, ingredients or colors that are prevalent in most competing sports drinks; the ability for customers to adjust serving size based on individual taste preference; and a lower-cost per serving than traditional single-use packaged sports drinks and coconut waters. Hydrate is also environmentally friendly due to its powdered form, avoiding single use plastics. Main benefits of our Beverage Enhancing supplements are a plant-based, less processed and recognizable ingredients set.

Hydrate

We currently produce five SKUs of our powdered coconut water, Hydrate platform, comprising Original Hydrate, Pineapple Mango Hydrate, Matcha Hydrate, Turmeric Hydrate, and Beet Hydrate.

In our Hydrate products, we focus on price per serving, emphasizing value in our products compared to single-use products. For example, our Original Hydrate has a suggested retail price of $14.95 for 19 recipe servings, less than a dollar per serving, which provides a strong value advantage when compared to single-use coconut waters which are frequently three to four dollars.

Beverage Enhancing Supplements

Our supplement line is currently two SKUs, Performance Mushrooms and Activate Daily Jumpstart. Our Performance Mushrooms are typically priced at $16.95 and Activate Daily Jumpstart at $17.95 for our online sales.

We are in the early stages of building out our supplements portfolio and will expand the breadth of both our Activate and Mushroom offerings over the course of the next several years.

Coffee, Tea, and Hot Chocolate Products

Instafuel and Hot Chocolate with Functional Mushrooms

Laird Superfood sells four SKUs of high quality instant beverage products, pre-mixed with its superfood creamer, in a just-add-hot-water line of Hot Chocolate with functional mushrooms and Instafuel products, Original Instafuel (coffee with Original Superfood Creamer), Unsweetened Instafuel (coffee with Unsweetened Superfood Creamer), and Matcha Instafuel (green tea and Original Superfood Creamer).

For Instafuel, our products are typically priced at $11.95 for an 8 ounce bag of Original Instafuel, and $19.95 for a 16 ounce bag.

 

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We currently self-manufacture all our Instafuel products to maximize long-term margin and control quality. We have significant manufacturing capacity available to expand production to support higher revenues as demand for these products continues to grow in the coming years.

Whole Bean and Ground Coffee

Whole bean and ground coffee is not a focus for us. However, coffees offer an intuitive and complementary sale to individuals purchasing our creamers and we believe that our new organic coffee blended with functional mushrooms will serve as a category disruptor and point of differentiation in an otherwise stale segment. We currently sell nine whole and ground roasts. Ground and whole bean coffee products represented 5.2% of our gross sales in 2019 and 5.0% of our gross sales during the first six months of 2020. Our whole bean and ground coffees are typically priced at $11.95 for standard varieties, and $14.95 for decaffeinated varieties.

Our coffees are sourced from Peru, and are a hand-picked, high altitude, shade grown variety selected for their low acidity.

Our Customer Usage Patterns

Today, all Laird Superfood products are focused on providing nutrient dense and functional alternatives in multi-billion-dollar market categories, such as coffee creamers and sports drinks. Laird Superfood products are also designed to become part of an individual’s daily ritual, which drives repeat usage, provides a base of recurring revenues and grows customer lifetime value.

Although the majority of our business is currently conducted online, we expect that percentage will decrease over time due to our anticipated roll-out across physical retail channels, which we believe will drive disproportionate revenue growth. We have over thirty months of cohort data on all customers that have ordered through our direct website. We view this data as indicative of expected customer usage patterns across all channels on the basis of historic trend analysis.

During the six months ended June 30, 2020, repeat users represented 30% of our total orders on our direct website. This occurred even as we sought to expand our new customer base as fast as reasonably possible. Furthermore, during the six-months ended June 30, 2020, 31% of our net sales on our direct website came from our subscription program. These dynamics create meaningful recurring revenues. We believe this combination of repeat usage, order frequency and retention rates provide us with attractive returns on marketing spend and customer unit economics.

When combining our Lairdsuperfood.com and Amazon.com online channels, we achieved a three-year cash LTV/CAC ratio of 4.1x in 2018, 3.7x in 2019 and 3.5x in the first six months of 2020. Since inception, we have witnessed strong retention rates in our online business and have active customers across every single monthly cohort in our Lairdsuperfood.com business going back to November 2015. A defining characteristic of our users is that over time their retention rates rise. From inception through June 30, 2020, 30.9% of the consumers that try our products order a second time. Once customers are on their fifth order, our average retention rate is 75.5% and by their tenth order our average retention rate is 86.9%. The customers exhibiting these order patterns become our “power users” and they drive the recurring revenue nature of our portfolio of products.

Subscriptions also play an important role in driving retention rates for our direct online business and in 2019 and the first six months of 2020 subscriptions made up 32% and 31% of our direct online net sales, respectively. Since the start of our subscription program in May 2017 we have grown our subscriber base at a compound annual growth rate of 315% through December 31, 2019 and 297% through June 30, 2020. In addition to subscriptions, Lairdsuperfood.com has a high percentage of repeat users. In 2018 and 2019, 64% and 65% of the net sales at Lairdsuperfood.com came from either subscribers or repeat users, and in the first six months of 2020, 61% of the net sales at

 

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Lairdsuperfood.com came from either subscribers or repeat users. This high percentage of repeat orders comes even as we have been rapidly growing our new customer base.

Distribution Channels

We generate revenue through three channels: online, wholesale, and food service. Our customers and distribution channels include our online business through our website, Lairdsuperfood.com, and Amazon.com (58.4% of 2019 net sales and 57.1% of net sales for the six months ended June 30, 2020), our wholesale sales to distributors and retailers in channels such as specialty, conventional grocery, mass market retail and drug retail (40.4% of 2019 net sales and 41.0% of net sales for the six months ended June 30, 2020), and food service customers (1.2% of 2019 net sales and 1.9% of net sales for the six months ended June 30, 2020).

Our net sales by distribution channel are reflected below:

 

     Sales, net for the six months ended June 30,  
     2020     2019  
     $     %     $     %  

Online

   $ 6,335,220       57.1%     $ 3,095,890       56.9%  

Wholesale

     4,551,047       41.0%       2,281,635       41.9%  

Food Service

     205,788       1.9%       67,782       1.2%  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Sales, net

   $ 11,092,055       100.0%     $ 5,445,307       100.0%  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Sales, net for the years ended December 31,  
     2019     2018  
     $     %     $     %  

Online

   $ 7,646,864       58.4%     $ 5,729,258       69.1%  

Wholesale

     5,295,024       40.4%       2,560,199       30.9%  

Food Service

     161,840       1.2%       1,625       0.0%  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Sales, net

   $ 13,103,728       100.0%     $ 8,291,082       100.0%  
  

 

 

   

 

 

   

 

 

   

 

 

 

After initial success selling online via Lairdsuperfood.com and Amazon.com, we have developed a strong footprint at leading retailers across the United States, including CVS Pharmacy and Whole Foods Market and now have begun to penetrate the food service channel.

Online

Our online business consists of Lairdsuperfood.com and Amazon.com.

Lairdsuperfood.com sells all of our SKUs with the exception of our refrigerated liquid Superfood Creamers. Lairdsuperfood.com is a proprietary distribution channel that drives engagement and provides feedback for future product development and allows for online-only sales of trial products, prior to the investment necessary to launch in wholesale.

Content on our website allows Laird Superfood to educate consumers on the benefits of our products and ingredients, market and cross-sell new products. It also serves as the cornerstone of our subscription business which has shown consistent revenue growth since its inception in May 2017 and has increased its individual subscriber base at a compound annual growth rate of 315% through December 31, 2019 and 297% through June 30, 2020.

For sales through Amazon.com, we send products to Amazon, and Amazon fulfills orders placed through its online marketplace from its fulfillment centers. Amazon charges us fulfillment fees for this service and may charge storage fees for certain inventory. We sell a majority of our SKUs on

 

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Amazon.com. Sales through Amazon.com accounted for 26.2% of our total sales in the first six months of 2020 and 30.2% of our total net sales in 2019.

Our net sales from our online business are reflected below:

 

     Sales, net for the six months ended June 30,  
     2020     2019  

Lairdsuperfood.com

   $ 3,431,269     $ 1,455,831  

Amazon

     2,903,951       1,640,059  
  

 

 

   

 

 

 

Total Sales, net

   $ 6,335,220     $ 3,095,890  
  

 

 

   

 

 

 

 

     Sales, net for the years ended December 31,  
     2019     2018  

Lairdsuperfood.com

   $ 3,692,845     $ 3,200,694  

Amazon

     3,954,019       2,528,564  
  

 

 

   

 

 

 

Total Sales, net

   $ 7,646,864     $ 5,729,258  
  

 

 

   

 

 

 

Wholesale

Our wholesale business addresses the $695 billion grocery industry, as well as many non-grocery retail channels. In 2019, wholesale made up 40.4% of our net sales, and in the first six months of 2020, wholesale made up 41.0% of our net sales. Laird Superfood products are sold through a diverse set of retail channels, including conventional, natural and specialty grocery, club, outdoor and drug stores.    We estimate our products are in over 5,500 retail door locations across the United States 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. We have invested in a national sales team of industry veterans, as well as an internal salesforce and customer service team. We believe the sales personnel and support staff currently in place are sufficient to fully penetrate the US wholesale market.

Our wholesale net sales include sales into wholesale grocery distribution, such as United Natural Foods, Inc. and KeHE Distributors, distributing to clients such as Erewhon, Sprouts, and Safeway, as well as direct wholesale sales to retailers across diverse channels, such as Costco, HEB, Hyvee, Natural Grocers, CVS, Kroger and REI.

In 2019 and the first six months of 2020, the wholesale business represented $5.3 million and $4.6 million of net sales, or 40.4% and 41.0% of our net sales, respectively. Our largest wholesale customer in 2019 and during the six months ended June 30, 2020 was Costco which represented 11.4% and 22.1% of our total net sales, respectively. No other customer represented more than 10.0% of our total net sales in 2019 or the six months ended June 30, 2020.

According to SPINS, as of June 30, 2020, we have achieved an All Commodity Volume (ACV) of 48.18% in the natural enhanced retailer channel, up from 19.87% as of June 30, 2019. In the conventional grocery channel, we estimate we have achieved less than 10% of ACV.

Food Service

Our food service business addresses a broad set of customers including, but not limited to, local and regional coffee shops, juice bars, corporate offices, hotels, restaurants, college campuses, professional sports teams and gyms. In 2019 and the first six months of 2020, food service was 1.2% and 1.9% of our net sales, respectively. Though currently a small percentage of net sales, we believe

 

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the market opportunity for our food service business is very large, providing us with the ability to further diversify our customer base and increase our TAM.

To strongly differentiate our food service offerings, Laird Superfood has worked with Bunn, one of the largest coffee capital equipment manufacturers in the United States, to create the Laird Superfood Crescendo®, a plant-based latte machine that is a convenient solution for a variety of office, gym, restaurant, and other food service environments. The average cash-on-cash pay-back period for food service customers that purchase a Crescendo® for retail use with our products is less than twelve months. Since the Laird Superfood Crescendo® was debuted in March 2019, we have built an installed base of 34 units as of June 30, 2020.    

In addition to our Crescendo® machines, our machines platform also includes our other hot beverage machine (HBM), offering a convenient solution for office, food service, and coffee shop environments. As of June 30, 2020, 39 HBMs were operating as an installed base, with average sales per installed HBM per month of Superfood Creamers and coffee of $134. Our HBM business is currently a small part of our business, but we believe it has potential to become meaningful given strong usage dynamics and return on capital for our business clients in delivering our Laird Superfood creamers and coffee products to end users. As of June 30, 2020, last six-month net sales to food service customers was 1.9% of net sales, and our machine platform represented 0.4% during the same period.

Competition

Fundamentally, we do not believe our competition is our peer better-for-you, less processed creamer companies. We view our competition as the legacy products which are refined-sugar laden, highly processed, and have undecipherable ingredient lists. We believe consumers want more transparency and understanding of what they are putting in their bodies, and are seeking less-processed alternatives, and our competitive edge is in driving those trends into conventional market share through a trusted, authentic brand platform.

We compete in the following markets, based on how we categorize our core products:

Coffee Creamers

Our creamer products primarily compete within the $3.0 billion domestic coffee creamer market that, according to IRI, grew 6.0% in 2019. Competitors in the U.S. creamer market include: Nestle, with its Coffee-mate and Natural Bliss product lines; Danone, an affiliate of one of our investors, with brands such as International Delight and Silk; and private-label brands including Treehouse Foods. Other competitors include Califia Farms, Green Grass Foods, Kitu, Dunkin Donuts, Fairlife and Starbucks.

We believe our creamers are differentiated from competing products due to their superior taste profile, a limited ingredient set, and a differentiated energy profile due to the inclusion of plant-based fats. In addition to being coffee additives, our powdered creamers are used by consumers in a variety of different applications, such as smoothies and baked goods.

Hydration and Beverage Enhancing Supplements

Our Hydrate platform primarily competes against hydration enhancing sports drinks. The two dominant competitors in the $6.6 billion sports drink market are Gatorade, owned by PepsiCo, and PowerAde, owned by The Coca-Cola Company. According to bevindustry.com, these two brands are estimated to control over 85% of the domestic sports drink market, with Gatorade’s annual revenues estimated to be approximately $5 billion and PowerAde’s annual sales estimated to be $1.0 billion in 2020. Smaller competitors include Body Armor, All Sport and Nuun.

 

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Hydrate also competes within the $2.3 billion coconut water market (360 Research Reports), which is highly fragmented relative to the sports drink market. Among others, competitors include Vita Coco, Zico (Coca-Cola), Harmless Harvest and Goya, all of which seek to provide alternative hydration solutions to plain water and traditional sports drinks.

We believe that our Hydrate platform is differentiated from competing products due to a very limited ingredient set that contains none of the artificial sugars, ingredients or colors that are prevalent in most competing sports drinks. Due to its convenient powdered form, Hydrate also allows customers to adjust serving size based on individual taste preference, has a lower cost per serving than traditional sports drinks or coconut waters and is environmentally friendly due to its powdered form and elimination of single-use plastics.

Activate and Performance Mushroom Supplements

Our Activate Daily Jumpstart line competes in the powdered juice supplement segment, which is highly fragmented. Activate Daily Jumpstart competes largely as an alternative to single-serve cold-pressed juices which frequently focus on the similar ingredients (lemon cayenne mixes), and certain other powdered beverages.

Our Performance Mushroom supplement competes in the natural supplement market, which is highly fragmented with several peer companies such as Four Sigmatic, which makes various functional-mushroom focused food and supplement products, and Mud\Wtr a functional mushroom focused coffee alternative, each of which contribute to growing awareness across the consumer marketplace of the potential benefits of mushroom supplement.

Instafuel and Hot Chocolate with Functional Mushrooms

Instafuel instant beverage products and our Hot Chocolate with Functional Mushrooms, compete with other just-add-hot-water lines of instant coffee products and hot chocolate. The national hot chocolate market is $945 million in the United States according to IBISWorld, primarily major CPG brands such as Swiss Miss, Nestle, and Ghirardelli. Due to being made with coconut sugar rather than refined sugars and inclusion of functional mushrooms, we believe our hot chocolate product to be highly differentiated from legacy hot chocolate brands.

The instant coffee market is $810 million in the United States according to National Coffee Association USA, primarily major CPG brands such as Folgers, Nescafe, and Starbucks Via. Due to being pre-mixed with our powdered Superfood Creamer, we believe Instafuel to be highly differentiated from legacy instant coffee brands.

Whole Bean and Ground Coffee

According to the Specialty Coffee Association of America, the retail value of the U.S. coffee market is estimated to be $89 billion as of May 2020. Although our coffee products represent a smaller portion of our overall business than the products described above, we believe that our line of high quality Peruvian organic roasts have the ability to compete effectively against the major coffee brands through their natural synergies for many buyers of our creamer products, and convenience of combined ordering on our online platform.

Supply Chain

Laird Superfood sources its raw materials from a variety of suppliers located both inside and outside the United States. The Company purchases substantial portions of its roasted coffee products from one supplier, coconut milk powder from two suppliers, and coconut water powder from one supplier. There are multiple sources of roasted coffee products, coconut milk powder and coconut

 

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water powder available to the Company, and management believes that the Company could find suitable replacements for these suppliers on substantially similar terms. In addition, the Company sources all of its Aquamin from a single supplier, Stauber Performance Ingredients. Raw materials are shipped to our production facility in Sisters, Oregon where they are stored in our warehouse and production facility. For products we self-manufacture, these raw materials are then mixed and packaged into finished goods. Finished goods are then warehoused and shipped out of Sisters to both retail and wholesale customers, as well as distributors across the country. A minority of our products are manufactured and packaged offsite. The finished goods are then shipped by our co-packers to our warehouse in Sisters where we then ship them to end-customers.

Laird Superfood has a supplier code of conduct for the ethical sourcing of raw materials from within and outside the United States, which it provides to suppliers as part of its supplier-onboarding process.

Regulation

We are subject to a wide range of governmental regulations and policies. We are required to comply with the regulations and policies promulgated by the Environmental Protection Agency (the “EPA”) and corresponding state agencies, as well as the United States Department of Agriculture (the “USDA”), the Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”) and the Occupational Safety and Health Administration (“OSHA”). In addition, the Federal Communications Commission (the “FCC”), monitors claims made by companies, particularly with celebrity spokespeople.

USDA National Organic Program and Similar Regulations

We are involved in the sourcing, manufacturing, supplying, processing, marketing, selling and distribution of organic food products and, as such, are subject to certain organic quality assurance standards. The Organic Foods Production Act mandates that the USDA develop national standards for organically produced agricultural products to assure consumers that those products marketed as organic meet consistent, uniform standards. The Organic Foods Production Act established the National Organic Program, a marketing program housed within the Agricultural Marketing Service of the USDA.

The USDA’s regulations, among other things, set forth the minimum standards producers must meet, and have reviewed by an accredited USDA-certifying agent, in order to label their products “100% organic,” “organic,” or “made with organic ingredients” and display the USDA organic seal. The regulations impose strict standards on the production of organic food products and limit the use of non-organic or synthetic materials in the production of organic foods. Generally, organic food products are produced using:

 

   

agricultural management practices intended to promote and enhance ecosystem health;

 

   

no genetically engineered crops, sewage sludge, long-lasting pesticides, herbicides or fungicides; and

 

   

food processing practices intended to protect the integrity of the organic product and disallow irradiation, genetically modified organisms or synthetic preservatives.

After becoming certified, organic operations must retain records concerning the production, harvesting, and handling of agricultural products that are to be sold as organic for a period of five years. Any organic operation found to be in violation of the USDA organic regulations is subject to enforcement actions, which can include financial penalties or suspension or revocation of their organic certificate.

Additionally, our organic products may be subject to various state regulations. Many states have adopted their own organic programs making the state agency responsible for enforcing USDA

 

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regulations for organic operations. However, state organic programs may also add more restrictive requirements due to specific environmental conditions or the necessity of production and handling practices in the state.

We currently manufacture and distribute a number of organic products that are subject to the standards set forth in the Organic Foods Production Act and the regulations adopted thereunder by the U.S. Department of Agriculture’s (USDA’s) National Organic Program (NOP). Our organic products are certified organic by a USDA-accredited certifying agent, and we believe that we are in material compliance with the organic regulations applicable to our business.

Food-Related Regulations

As a manufacturer and distributor of food products, we are also subject to a number of federal, state and local food-related regulations, including, but not limited to, the Federal Food, Drug and Cosmetic Act of 1938 (the “FDCA”) and regulations promulgated thereunder by the FDA. This comprehensive regulatory framework governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the U.S. The FDA:

 

   

regulates manufacturing practices for foods through its current good manufacturing practices and regulations affecting food manufacturing;

 

   

regulates ingredient safety; and

 

   

prescribes the format and content of certain information required to appear on food product labels.

Some of the key food safety and food labeling regulations in the U.S. are discussed in the following sections.

Food Safety Regulations

The FDA Food Safety Modernization Act (“FSMA”) enables the FDA to better protect public health by strengthening the food safety system. The law provides the FDA with new enforcement authorities and tools designed to achieve higher rates of compliance with prevention- and risk-based food safety standards and to better respond to and contain problems when they do occur.

The FDA has now finalized its rules necessary to implement FSMA including: (1) Preventive Controls for Human Food, (2) Preventive Controls for Food for Animals, (3) Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption, (4) Foreign Supplier Verification Programs for Importers of Food for Humans and Animals, (5) Sanitary Transportation of Human and Animal Food, (6) Mitigation Strategies to Protect Food Against Intentional Adulteration, and (7) Accredited Third-Party Certification. Most of these rules have gone into effect. For others, including the Foreign Supplier Verification Program requirements, we face tiered compliance dates that depend on the size of our Company and the size of the company from which we are sourcing the imported ingredient. The intentional adulteration rule goes into effect July 27, 2020 for what FDA considers small businesses, with fewer than 500 employees, such as the Company.

a. Hazard Analysis and Risk-Based Preventive Controls

Many of the rules, particularly those relating to good manufacturing practices and preventive controls relating to food for human consumption, sanitary transport, and foreign supplier verification and import safety, apply to us as we manufacture, process, pack, hold and transport food for human consumption. We also work with foreign suppliers who provide us with raw materials. We have developed a food safety plan that we believe complies with our obligations under the FDA preventive

 

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controls requirements. Under that rule, covered facilities must establish and implement a written food safety system that includes an analysis of hazards and risk-based preventive controls. The hazard analysis must consider known or reasonably foreseeable biological, chemical, and physical hazards. The preventive control measures are required to ensure that hazards requiring a preventive control will be minimized or prevented. They include process, food allergen, and sanitation controls, as well as supply chain controls and a recall plan. In addition to establishing preventive controls, we must continuously ensure that the controls are effective through monitoring and verification activities. If a control fails, prompt corrective actions must be taken to identify a problem with preventive control implementation, to reduce the likelihood the problem will recur, evaluate affected food for safety, and prevent it from entering commerce. All corrective actions must be documented in writing.

The final rule mandates that a manufacturing facility have a risk-based supply chain program for those raw materials and other ingredients that have an identified hazard requiring a supply chain applied control. Accordingly, we are responsible for ensuring that foods are received only from approved suppliers, or on a temporary basis from unapproved suppliers whose materials are subject to verification activities before being accepted for use.

The final rule updated and clarified current good manufacturing practices (“CGMPs”). Management is required to ensure that all employees who manufacture, process, pack or hold food are qualified and properly educated to perform their assigned duties. We have developed regulatory compliance programs to ensure we are in compliance with the applicable rules, and we continue to monitor FDA’s ongoing efforts to develop guidance for industry clarifying FDA’s expectations under the rule.

We believe that we are in material compliance with the current regulations promulgated to implement FSMA that are applicable to our business. We are continuing to develop internal compliance policies and practices for those rules that have future compliance dates in order to ensure compliance by the required deadlines.

b. Foreign Supplier Verification Program

The FDA’s Foreign Supplier Verification Program requires that the United States owner or consignee of imported food take steps to verify that the foreign supplier of imported food is manufacturing the food in accordance with FDA requirements, that the importer understand what hazards the foreign supplier is controlling and how those hazards are controlled, and that this oversight program is documented. The regulation is being implemented using a tiered series of compliance dates based on the size of the U.S. importer and the foreign supplier. We have developed a program that we believe is in compliance with this regulation and are monitoring its ongoing implementation.

c. Sanitary Transportation Rule

FDA’s regulations governing the Sanitary Transportation of Food for Humans and Animals requires that the parties involved in shipping food take steps to ensure that food is not contaminated or otherwise rendered unsafe during transportation. Steps include ensuring the conveyance is clean and that refrigerated foods are maintained in a refrigerated state. Fully packaged foods that do not require temperature control for safety, such as the foods that we currently produce, are generally exempt from these requirements. These requirements could become applicable to us, however, if we were to change our product line.

d. Bioterrorism Act

In addition, we are subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the “Bioterrorism Act”) and regulations issued thereunder. The Bioterrorism

 

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Act authorizes the FDA to take the regulatory action necessary to protect the nation’s food supply against the threat of intentional or accidental contamination. The major components of the Bioterrorism Act include registration of food facilities with the FDA; prior notice of virtually all imported food shipments under FDA authority; recordkeeping requirements for food facilities; FDA authority to administratively detain food; FDA authority to institute debarment of food importers for various violations related to food importation; and creation of a clear way to re-import previously refused foods if certain criteria are met.

e. Other Requirements

Lastly, we are subject to numerous other federal, state and local regulations involving such matters as the licensing and registration of manufacturing facilities, enforcement by government health agencies of standards for our products, inspection of our facilities and regulation of our trade practices in connection with the sale of food products.

Food Labeling Regulations

The Company is subject to certain requirements relating to food labeling under the FDCA and corresponding FDA regulations as well as the Fair Packaging and Labeling Act enacted in 1967 and corresponding FTC regulations. Although the FTC and FDA share jurisdiction over claims made by manufacturers of food products (with the USDA also having jurisdiction over “organic” claims), the FDA retains primary jurisdiction over the labeling of food products whereas the FTC regulates advertising.

The FDA and FTC require that all food products be labeled to disclose the net contents, the identity of commodity, nutrition information, and the name and place of business of the product’s manufacturer, packer, or distributor. Both agencies also require that any claim on the product be truthful and not misleading.

The FDA is in the process of updating its nutrition labeling rules, which in their current form date back to 1993. The updated nutrition labeling rules require manufacturers to, among other things:

 

   

increase the type size for “calories,” “servings per container,” and the “serving size” declaration, and bolding the number of calories and the “serving size” declaration to highlight this information;

 

   

declare the actual amount, in addition to percent Daily Value, of vitamin D, calcium, iron and potassium;

 

   

include “added sugars,” in grams and as percent Daily Value on the label; and

 

   

display serving sizes on labels based on amounts of foods and beverages that people are actually eating, not what they should be eating.

Manufacturers with $10 million or more in annual food sales must use the new labels by January 1, 2020; all other food manufacturers will have until January 1, 2021 to comply. We believe that we will be in material compliance with these new food labeling regulations where applicable to our business by the compliance date.

FDA also has detailed regulations and requirements governing various types of claims about products’ nutritional value and wellness benefits, such as a nutrient content claims, health claims, and structure-function claims. Claims falling under these regulations must be phrased in specific ways to avoid misbranding the food. We believe we are in compliance with applicable FDA claims regulations.

Other state and local statutes and regulations may impose additional food labeling requirements. For instance, the California Safe Drinking Water and Toxic Enforcement Act of 1986 (commonly

 

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known as Proposition 65) requires, with a few exceptions, that a specific warning appear on any consumer product sold in California that contains a substance, above certain levels, listed by that state as having been found to cause cancer or birth defects. This law exposes all food and beverage producers to the possibility of having to provide warnings on their products.

FDA Generally Recognized as Safe Regulations

Food ingredients can be classified into four groups including: food additives; color additives; prior sanctioned substances; and Generally Recognized as Safe (“GRAS”) substances. In particular, a food additive is a substance, “the intended use of which results or may reasonably be expected to result, directly or indirectly, either in their becoming a component of food or otherwise affecting the characteristics of food.” Food additives require premarket approval under the 1958 Food Additive Amendments to the FDCA as administered by FDA. However, in enacting those amendments, Congress recognized that many substances intentionally used in a manner whereby they are added to food would not require a formal premarket review by FDA to assure their safety, either because their safety had been established by a long history of use in food or by virtue of the nature of the substances, their customary or projected conditions of use, and the information generally available to scientists about the substances. Congress thus excluded from the definition of “food additive” substances that are generally recognized, among qualified experts, as having been adequately shown through scientific procedures to be safe under the conditions of their intended use, or GRAS.

Companies may establish GRAS status through “self-affirmation” whereby the producer determines on its own that the ingredient is GRAS, normally with the assistance of a panel of qualified experts. The producer may also voluntarily submit a “GRAS Notification” to the FDA that includes the products description, conditions of use, and the basis for GRAS determination, among other information. The FDA response to a GRAS notice, typically issued within 180 days, is not an approval and the product may be marketed while the FDA is reviewing the information.

A food ingredient is eligible for GRAS classification based on the “views of experts qualified by scientific training and experience to evaluate the safety” of the product. The expert’s views are either based on scientific procedures or through experience based on common use of the material prior to 1958. If based on scientific procedures, they must use the same quantity and quality of scientific evidence as would be required for the FDA to issue a premarket approval of the sale of a food additive. If a food ingredient is not entitled to GRAS status, premarket approval must be sought through the filing of a Food Additive Petition.

A number of our products are being marketed pursuant to GRAS self-affirmation. However, such status cannot be determined until actual formulations and uses are finalized. Thereafter, we decide whether self-affirmation procedures and a GRAS notification will be appropriate. For those components that do not qualify for GRAS, we may be required to file a Food Additive Petition. If a petition is required, we may elect to sell or license our rights to manufacture, market and distribute the component to another party.

Environmental Regulations

We are also subject to various U.S. federal, state and local environmental regulations. Some of the key environmental regulations in the U.S. include, but are not limited to, the following:

 

   

air quality regulations – air quality is regulated by the EPA and certain city/state air pollution control groups. Emission reports are filed annually.

 

   

waste treatment/disposal regulations – solid waste is either disposed of by a third-party or, in some cases, we have a permit to haul and apply the sludge to land. Agreements exist with local city sewer districts to treat waste at specified levels of Biological Oxygen Demand

 

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(“BOD”), Total Suspended Solids (“TSS”) and other constituents. This can require weekly/monthly reporting as well as annual inspection.

 

   

sewer regulations – we have agreements with the local city sewer districts to treat waste at specified limits of BOD and TSS. This requires weekly/monthly reporting as well as annual inspection.

 

   

hazardous chemicals regulations – various reports are filed with local city/state emergency response agencies to identify potential hazardous chemicals being used in our facilities.

 

   

storm water – all facilities are inspected annually and must comply with an approved storm water plan to protect water supplies.

Consumer Protection Regulations

The FTC has the authority to regulate traditional and digital advertising for most types of consumer products, including our product offerings. The FTC has interpreted the Federal Trade Commission Act (the “FTC Act”) to prohibit unfair or deceptive acts or practices in commerce and oversees express and implied claims in advertising as well as certain promotional activities such as the use of social media influencers by advertising companies.

The FTC revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Guides”), which became effective on December 1, 2009. Although the Guides are not binding, they explain how the FTC interprets Section 5 of the FTC Act’s prohibition on unfair or deceptive acts or practices. Consequently, the FTC could bring a Section 5 enforcement action based on practices that are inconsistent with the Guides. Under the revised Guides, advertisements that feature a consumer and convey his or her atypical experience with a product or service are required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides, which allowed advertisers to describe atypical results in a testimonial as long as they included a disclaimer such as “results not typical,” the revised Guides no longer contain such a safe harbor. The revised Guides also add new examples to illustrate the long-standing principle that “material connections” between advertisers and endorsers (such as payments or free products), connections that consumers might not expect, must be disclosed.

To the extent we may rely on endorsements or testimonials, we will review any relevant relationships for compliance with the Guides and we will otherwise endeavor to follow legal standards applicable to advertising. Our marketing, advertising, and promotional activities for our consumer products must adhere to the FTC Act’s requirement for truthful, non-misleading and adequately substantiated claims. If our advertising does not comply with FTC and similar State requirements, we could become subject to an investigation by FTC or a consent decree, which could have a material adverse impact on our business and reputation.

Employee Safety Regulations

We are subject to certain safety regulations, including OSHA regulations. These regulations require us to comply with certain manufacturing safety standards to protect our employees from accidents. We believe that we are in material compliance with all employee safety regulations applicable to our business.

Intellectual Property

We have the right to the following trademarks: Laird Superfood, Superfood Creamer and Instafuel in the United States, and Laird Superfood in several international jurisdictions, including the European Union.

 

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Employees

As of June 30, 2020, we had 115 full-time employees and no part-time employees. None of these employees are represented by labor unions or covered by collective bargaining agreements. We believe that our employee relations are good.

Facilities

We currently lease approximately 6,888 square feet of commercial space for manufacturing, distribution and related office use in one building, and a second lease provides us approximately 13,600 square feet of further commercial space for manufacturing, distribution and related office use.

We believe that our existing facilities, our facilities under construction and other available properties will be sufficient for our needs for the foreseeable future.

Legal Proceedings

From time to time we may be involved in disputes or litigation relating to claims arising out of our operations. We are not currently a party to any legal proceedings that could reasonably be expected to have a material adverse effect on our business, financial condition and results of operations.

 

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MANAGEMENT

The following table sets forth information about our executive officers and directors as of the date of this prospectus.

 

Name

   Age     

Position

Executive Officers:

     

Paul Hodge Jr.

     47      Co-Founder, President, Chief Executive Officer and Director

Laird Hamilton

     56      Co-Founder, Chief Innovator and Director

Valerie Ells

     35      Chief Financial Officer

Luan Pham

     49      Chief Marketing and Revenue Officer

Jamie Eichman

     42      Chief Operating Officer

Andrew McCormick

     35      General Counsel and Secretary

Non-Employee Directors and Director Nominees:

Thomas Wetherald

     49      Chairman of the Board, Director

Gregory B. Graves

     60      Director

Geoffrey T. Barker

     58      Director Nominee

Jim Buechler

     61      Director Nominee

Maile Clark

     47      Director Nominee

Set forth below is a brief biography of our executive officers, directors and director nominees.

Paul Hodge Jr. – Co-Founder, President, Chief Executive Officer and Director

Mr. Hodge co-founded Laird Superfood and has served as our President and Chief Executive Officer and member of our Board of Directors since its founding in 2015. Prior to founding the Company, in 2015, Mr. Hodge founded GolfBoard Inc. In 2014, Mr. Hodge founded GB Leasing, a leasing company designed to lease fleets of GolfBoards. From 2007 to 2011, Mr. Hodge was Chief Executive Officer and founder of Solar Nation, Inc., a fully vertically integrated engineer, procure and construct company which developed, engineered, constructed and financed commercial and utility scale solar systems. Solar Nation filed a voluntary petition for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code in February 2013. The Company has determined that Mr. Hodge’s business experience and management background make him a qualified member of our management group and board of directors.

Laird Hamilton – Co-Founder, Chief Innovator and Director

Mr. Hamilton co-founded Laird Superfood and has served as a member of our Board of Directors since its founding in 2015. Mr. Hamilton is an American athlete best known for his accomplishments in big wave surfing. Over the past 25 years, Mr. Hamilton has also been hailed as an innovator in several crossover board sports, including tow-in surfing, stand-up paddle boarding and hydrofoil boarding. For the past decade Mr. Hamilton has been focused on bringing his expertise and passion for fitness and nutrition to the masses. He has accomplished this by creating and co-founding several businesses focused on this mission. Most notably, in June 2015, Mr. Hamilton co-founded Laird Superfood, Inc. to focus on introducing his nutritional ideas to the broader public. Mr. Hamilton also co-created XPT Extreme Performance Training, a performance lifestyle brand, the following year to focus on his philosophies in exercise and lifestyle. The Company has determined that Mr. Hamilton’s role as a co-founder of the Company and his involvement in the development of the Company’s products and direction make him a qualified member of our board of directors.

 

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Valerie Ells – Chief Financial Officer

Ms. Ells joined Laird Superfood in April 2018 as our Controller before serving as our CFO since April 2019. Prior to joining us, Ms. Ells was a Financial Planning and Analysis Senior Accounting Manager and Interim Chief Accounting Officer for First Interstate Bank (NASDAQ: FIBK) where she revamped the firm’s internal financial planning and analysis processes as well as external reporting processes for the SEC and other regulatory agencies from 2017 to 2018. From 2015 to 2017, Ms. Ells served as Controller of the Bank of the Cascades (NASDAQ: CACB) and as Assistant Controller from 2013 to 2015, where she was heavily involved in M&A due diligence and SEC reporting. From 2010 to 2013, she was the Assistant Controller for Omeros Corporation, a then newly public biotech firm, where she designed and implemented a Sarbanes-Oxley Act compliant internal control environment, and from 2007 to 2010, she worked as an auditor with KPMG, LLP, focusing on clients within the manufacturing industry. Ms. Ells received her B.A. and Master’s of Accountancy from Gonzaga University before becoming a licensed CPA in the State of Oregon.

Luan Pham – Chief Marketing and Revenue Officer

Mr. Pham has served as our Chief Marketing and Revenue Officer since July 2017. Prior to joining us, Mr. Pham was Head of Marketing at Condé Nast Media from 2012 through 2017 where he worked with iconic brands such as Golf Digest, GQ, Wired, and Pitchfork. Mr. Pham also served as Senior Director of Marketing, Golf and Tennis for Polo Ralph Lauren from 2010 to through 2011. Prior to relocating to the East Coast, Mr. Pham was Director of Marketing for Condé Nast, Golf Digest—West Coast from 2007 through 2010 and as Creative Director, Sales Development Director and Marketing Services Director for Kiplinger Washington Editors from 1997 through 2007. Mr. Pham has a Bachelor’s in Communication, Emphasis in Advertising, from California State University, Fullerton.

Jamie Eichman – Chief Operating Officer

Ms. Eichman joined our company in October 2018 after serving as a professional consultant with her consulting firm Solstice Consulting LLC to implement a formalized and streamlined project management process at Laird Superfood. Previously, Ms. Eichman spent 15 years in risk and project management in the financial services industry serving in numerous roles including Chief Compliance Officer at First Interstate Bank (NASDAQ: FIBK) from 2017 to 2018, SVP Director of Internal Audit at Bank of the Cascades (NASDAQ: CACB) from 2014 to 2017, AVP, Operational Risk and SOX Officer from 2013 to 2014, and Senior Internal Auditor at Bank of the Cascades from 2008 to 2013. Ms. Eichman holds a Bachelor’s in Environmental Science from Oregon State University as well as the professional certifications of Certified Internal Auditor, Certified Financial Services Auditor.

Andrew McCormick – General Counsel and Secretary

Mr. McCormick has served as our General Counsel and Secretary since February 2019. Prior to joining us, Mr. McCormick was a Senior Associate at the Denver office of Hogan Lovells US LLP, where he advised clients, including Laird Superfood, on capital markets and M&A matters from 2014 to 2019. From 2011 to 2013 Mr. McCormick was an associate at Latham & Watkins (London), LLP, where he advised issuers and investment banks in global capital markets transactions. Mr. McCormick holds a BA with distinction from Hendrix College in Conway, Arkansas, a JD from Columbia University in New York, and an LLM from the London School of Economics in the UK.

Non-Employee Directors

Thomas Wetherald – Chairman of the Board, Director

Mr. Wetherald has served as a member of our Board of Directors since 2017 and as Chairman of the Board of Directors since June 30, 2019. Mr. Wetherald was the Company’s Chief Financial Officer

 

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from January 1, 2018 until April 14, 2019, and Co-CFO from April 15, 2019 until June 30, 2019. Prior to joining us, Mr. Wetherald operated as an independent money manager. Mr. Wetherald was also an Equity Analyst, from 2002 to 2005, and Small-Cap Growth Portfolio Manager, from 2005 to 2015, at Massachusetts Financial Services from 2002 through 2015. Prior to joining Massachusetts Financial Services, Mr. Wetherald worked as Research Assistant, Associate and Equity Analyst at Manning & Napier from 1995 through 2002 and at Chase Manhattan Bank from 1993 through 1995. Mr. Wetherald graduated from St. Lawrence University in 1993. The Company has determined that Mr. Wetherald’s investment and finance background make him a qualified member of our board of directors.

Gregory B. Graves – Director

Mr. Graves has served as a member of our Board of Directors since 2018. He has served as Chief Financial Officer of Entegris, Inc. since April 2007. From September 2002 to April 2007, he served as Senior Vice President, Strategic Planning & Business Development. Prior to joining Entegris in September 2002, Mr. Graves held positions in investment banking and corporate development, including at Piper Jaffray, RBC (Dain Rauscher) and The Pillsbury Company. From May 2017 to June 2019, Mr. Graves served as a director and Chairman of the Audit Committee of Plug Power Inc. (energy solutions provider). Mr. Graves has served on the Board of Directors of the Minneapolis Heart Institute Foundation since May 2016 and been Chairman of the Audit and Finance Committee since April 2019. Mr. Graves holds a B.A. and Master’s in Accounting and Taxation from the University of Alabama and an M.B.A. from the University of Virginia. The Company has determined that Mr. Graves finance background make him a qualified member of our board of directors and audit committee.

Geoffrey T. Barker – Director Nominee

Mr. Barker will serve as a director upon the effectiveness of the registration statement of which this prospectus forms a part. Mr. Barker has been a member of the Board of Directors of Smartsheet, Inc. (NYSE: SMAR), since 2012, and its Chair since 2016. Mr. Barker cofounded RPX Corporation, a provider of patent risk management solutions, and from 2008 to July 2016, Mr. Barker served in several positions including as Director, Chief Operating Officer, and Co-CEO. Mr. Barker has co-founded several businesses, including Vigilos, Inc., an enterprise security solutions provider, and the Cobalt Group, an online marketing services company. In addition to Smartsheet, Mr. Barker currently serves on the board of directors of a number of private companies. Mr. Barker holds a B.A. in Economics from Tufts University and an M.B.A. from Columbia University. We believe that Mr. Barker’s entrepreneurial, operating, and financial experience qualify him to serve on our board of directors.

Jim Buechler – Director Nominee

Mr. Buechler will serve as a director upon the effectiveness of the registration statement of which this prospectus forms a part. Mr. Buechler is currently President & CEO of the Buechler Foundation. From October 2016 to March 2019, Mr. Buechler was President & CEO of Cutwater Spirits and Chairman of the Board. Cutwater Spirits, one of the most award-winning distilleries in the world, was sold to Anheuser-Busch in March 2019. Prior to Cutwater Spirits, Mr. Buechler served as Ballast Point Brewing & Spirits’ President and CEO. A top-ten craft brewery, Ballast Point was one of the most award winning and fastest growing craft breweries in the country. In 2016, Mr. Buechler was recognized as the Corporate Directors Forum 2016 Director of the Year for Companies in Transition and was recognized by Our City San Diego as one of San Diego’s Most Influential Business Leaders. He served as Ballast Point President and General Manager and President from January 2012 to June 2015 and as Secretary from January 2012 to October 2013. Mr. Buechler served as a director from January 2012 and Chairman of the Board from June 2015 through December 2015. Prior to joining

 

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Ballast Point, Mr. Buechler served as President and CEO of The Lessons Company, an internet company focused on managing the relationships between students and instructors, from 2007 to 2011. Additionally, Mr. Buechler has nearly twenty years of experience working in the wireless telecommunications industry, including as President of Sempra Broadband, a company focused on providing utility smart grid services and retail broadband, from 2005 to 2007, and in several Vice President positions at AirTouch Cellular from 1997 to 2000. Mr. Buechler also has experience in the commercial real estate industry, including serving in executive positions with American Property Management Corporation from 2004-2005 and CityLink Investment Corporation from 2002-2004. Mr. Buechler received a B.S. from San Diego State University summa cum laude and an M.B.A. with distinction from Harvard Business School. We believe that Mr. Buechler’s entrepreneurial, operating, and financial experience qualify him to serve on our board of directors.

Maile Clark – Director Nominee

Maile Naylor, nee Clark (Maile Clark) will serve as a director upon the effectiveness of the registration statement of which this prospectus forms a part. Ms. Clark has been a member of the Board of Directors of BJ’s Wholesale Club (NYSE: BJ) since 2019. Ms. Clark spent twenty-five years working in the investment management industry analyzing and evaluating global consumer discretionary companies. She previously worked as an Investment Officer at MFS Investment Management, a global asset management company, from September 2005 until her retirement from the investment management industry in April 2018. Prior to that, Ms. Clark also held positions at Scudder Kemper Investments and Wellington Management, each investment management firms. Ms. Clark currently is a member of the Boston Ballet Board of Overseers. She holds a bachelor’s degree in Finance from Boston University and is a CFA charter holder. We believe that Ms. Clark’s experience in the investment management industry qualifies her to serve on the Board of Directors.

Board Composition

Our business and affairs are organized under the direction of our board of directors, which currently consists of four members. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and on an ad hoc basis as required.

In accordance with the terms of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of the offering, respectively, our board of directors will be elected annually to a one-year term.

The authorized size of our board of directors is currently four members and, effective as of the day immediately prior to the closing of the offering, will be increased to seven members. The authorized number of directors may be changed only by resolution of our board of directors.

Director Independence

Our board of directors has determined that each of Geoffrey T. Barker, Jim Buechler, Maile Clark and Gregory B. Graves qualifies as “independent” in accordance with the NYSE American listing standards.

There are no family relationships among any of our directors or executive officers.

Board Committees

Immediately prior to the closing of the offering, our board of directors will establish a new audit committee, compensation committee and a nominating and corporate governance committee. The following is a brief description of those committees.

 

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The Audit Committee

Upon the consummation of this offering, our audit committee will consist of Jim Buechler, Gregory Graves and Maile Clark, with Mr. Graves serving as the chairperson of the committee. Each member of the audit committee satisfies the NYSE American independence requirements.

Our board of directors has determined that each of Mr. Graves and Ms. Clark is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financial sophistication as defined under the applicable rules and regulations of the NYSE American.

Under the rules of the SEC, members of the audit committee must also meet heightened independence standards. Our board of directors has determined that each of Mr. Buechler, Mr. Graves and Ms. Clark are independent under the applicable rules of the SEC and the NYSE American.

The audit committee’s primary responsibilities will be to assist the board of directors in overseeing:

 

   

the Company’s accounting and financial reporting processes and internal controls as well as the audit and integrity of the Company’s financial statements;

 

   

the qualifications, independence and performance of the Company’s independent registered public accounting firm;

 

   

the Company’s compliance with applicable law, including U.S. federal securities laws and other legal and regulatory requirements;

 

   

the performance of the Company’s internal audit function; and

 

   

the Company’s overall risk exposure and management.

We expect that both our independent registered public accounting firm and management will periodically meet privately with our audit committee.

We believe that the composition and functioning of our audit committee will comply with all applicable requirements of the Sarbanes-Oxley Act, and all applicable SEC and NYSE American rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

The Compensation Committee

Upon the consummation of this offering, our compensation committee will consist of Mr. Buechler, Mr. Graves and Ms. Clark, with Mr. Buechler serving as the chairperson of the committee. Each member of the compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, and satisfies the NYSE American independence requirements. The compensation committee will assist the board of directors in setting the compensation of our directors and executive officers and administering and implementing our incentive compensation plans and equity-based plans. The compensation committee’s duties and responsibilities will include:

 

   

providing oversight of the compensation of our Chief Executive Officer and other executive officers;

 

   

administering our equity compensation plans and granting equity awards pursuant to such plans or outside of such plans; and

 

   

providing oversight of the Company’s compensation policies and plans and benefits programs and overall compensation philosophy.

 

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Under our compensation committee charter, the compensation committee will have the authority to retain compensation consultants. The compensation committee also will have the authority to obtain advice and assistance from our executives, internal or external legal, accounting or other advisors as it determines necessary to carry out its duties.

The compensation committee may delegate its authority to determine the amount and form of compensation paid to our non-executive employees and consultants to officers and other appropriate supervisory personnel. It may also delegate its authority (other than its authority to determine the compensation of our Chief Executive Officer) to a subcommittee of the compensation committee. Finally, to the extent permitted by applicable law, the compensation committee may delegate to one or more officers of the Company (or other appropriate personnel) the authority to recommend stock options and other stock awards for employees who are not executive officers or members of our board of directors.

The Nominating and Corporate Governance Committee

Upon the consummation of this offering, our nominating and corporate governance committee will consist of Mr. Buechler, Mr. Graves and Ms. Clark, with Ms. Clark serving as the chairperson of the committee. Each of the members of our nominating and corporate governance committee is an independent director under the applicable rules and regulations of the NYSE American relating to nominating and corporate governance committee independence. The nominating and corporate governance committee’s duties and responsibilities will include:

 

   

assisting the board of directors in identifying individuals who are qualified to become members of the board and selecting, or recommending to the board that the board select, specified individuals as director nominees;

 

   

developing and maintaining corporate governance policies applicable to the Company; and

 

   

overseeing evaluations of the board.

The nominating and corporate governance committee will identify director candidates based on input provided by a number of sources, including members of the committee, other directors, our shareholders, members of management and third parties. The nominating and corporate governance committee also has the authority to consult with or retain advisors or search firms to assist in the identification of qualified director candidates.

As part of the identification process, the nominating and corporate governance committee will also take into account each candidate’s business and professional skills, experience serving in management or on the board of directors of companies similar to the Company, financial literacy, independence, personal integrity and judgment. In conducting this assessment, the nominating and corporate governance committee will, in connection with its assessment and recommendation of candidates for director, consider diversity (including, but not limited to, gender, race, ethnicity, age, experience and skills) and such other factors as it deems appropriate given the then-current and anticipated future needs of the board and the Company, and to maintain a balance of perspectives, qualifications, qualities and skills on the board. The board of directors does not have a formal diversity policy for directors. However, the board of directors is committed to an inclusive membership. Although the nominating and corporate governance committee may seek candidates that have different qualities and experiences at different times in order to maximize the aggregate experience, qualities and strengths of the board members, nominees for each election or appointment of directors will be evaluated using a substantially similar process.

 

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Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics, which outlines the principles of legal and ethical business conduct under which we do business. The code is applicable to all our directors, officers and employees and is available on our corporate website. We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website or in filings under the Exchange Act to the extent required by applicable rules and exchange requirements.

Limitation of Liability and Indemnification

Our certificate of incorporation and bylaws provide the indemnification of our directors and officers to the fullest extent permitted under the Delaware General Corporation Law (“DGCL”). In addition, the certificate of incorporation provides that our directors shall not be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director and that if the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

As permitted by the DGCL, we have entered into or plan to enter into separate indemnification agreements with each of our directors and certain of our officers that require us, among other things, to indemnify them against certain liabilities which may arise by reason of their status as directors, officers or certain other employees. We expect to obtain and maintain insurance policies under which our directors and officers are insured, within the limits and subject to the limitations of those policies, against certain expenses in connection with the defense of, and certain liabilities that might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been directors or officers. The coverage provided by these policies may apply whether or not we would have the power to indemnify such person against such liability under the provisions of the DGCL.

We believe that these provisions and agreements are necessary to attract and retain qualified persons as our officers and directors. At present, there is no pending litigation or proceeding involving our directors or officers for which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

 

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EXECUTIVE COMPENSATION

Overview

We are focused on our mission to provide great tasting, high-quality, plant-based products that are healthy, convenient, affordable, and available to all. We operate in rapidly evolving and highly competitive markets. To succeed in these environments and execute our strategy of building our platform, we must execute our strategies set forth elsewhere in this prospectus. To achieve these objectives, we need to attract and retain a highly talented team of executives who possess and demonstrate strong leadership and management capabilities.

Following this offering, we are committed to pursuing an executive compensation philosophy that embraces the best practices of large, multinational companies, as discussed further below. In connection with this offering, we are (i) entering into amended employment agreements with each of our named executive officers in order to, among other things, better align their compensation packages with our long-term strategic goals and harmonize the terms and conditions amongst the named executive officers; (ii) adopting a clawback policy; (iii) adopting the Laird Superfood, Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”); and (iv) adopting the Laird Superfood, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”).

Our named executive officers, or NEOs, for the year ended December 31, 2019 were Paul Hodge, our President and Chief Executive Officer, Luan Pham, our Chief Marketing and Revenue Officer, and Valerie Ells, our Chief Financial Officer.

Administration

Following the consummation of this offering, our Compensation Committee, which includes independent directors, will oversee our executive compensation program and will be responsible for approving the nature and amount of the compensation paid to our NEOs. The committee will also administer our equity compensation plan and awards.

Elements of Compensation

Our compensation program for NEOs consists of the following elements of compensation, each described in greater depth below:

 

   

base salaries;

 

   

performance-based bonuses; and

 

   

equity-based incentive compensation.

Base Salary

Base salaries are an annual fixed level of cash compensation to reflect each NEO’s performance, role and responsibilities, and retention considerations, as applicable, and market considerations in the Pacific Northwest region.

Performance-Based Bonus

To incentivize management to drive strong operating performance and reward achievement of our business goals, our executive compensation program includes performance-based bonuses for NEOs. Following consummation of this offering, our Compensation Committee will establish annual target performance-based bonuses for each NEO during the first quarter of the fiscal year, which bonuses may take the form of equity grants or cash. In addition, the Company intends to pay a one-time cash bonus of $150,000 to Ms. Ells following the closing of this offering.

 

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Equity Compensation

We pay equity-based compensation to our NEOs in order to link the long-term results achieved for our shareholders and the rewards provided to NEOs, thereby ensuring that such NEOs have a continuing stake in our long-term success.

Following consummation of this offering, we may, from time to time, make grants of equity awards to the current NEOs under the 2020 Plan, which reserves for issuance 1,000,000 shares of common stock. The Company currently intends to grant restricted stock units to its employees, including each of the NEOs, following the consummation of this offering, with the amount of the restricted stock units to be based on each recipient’s length of employment with the Company. The Company intends to issue 250 restricted stock units to Mr. Hodge, 200 restricted stock units to Mr. Pham and 150 restricted stock units to Ms. Ells as part of such grants.

Summary Compensation Table

The following table sets forth information regarding compensation earned by or paid to our named executive officers for the fiscal years ended December 31, 2019 and 2018.

 

Name and Principal Position

   Year     Salary
($)
    Bonus
($)
    Option
Awards
($)(1)
    Total
($)
 

Paul Hodge

          

President and Chief Executive Officer

     2019     $ 186,778       -         -       $ 186,778  
     2018     $ 14,070       -       $ 237,300     $ 251,370  

Luan Pham(2)

          

Chief Marketing and Revenue Officer

     2019     $ 189,000     $ 41,500     $ 553,200     $ 783,700  
     2018     $ 178,732     $ 25,000     $ 19,900     $ 223,632  

Valerie Ells(3)

          

Chief Financial Officer

     2019     $ 153,828       -       $ 131,310   $ 285,138  
     2018     $ 85,250       -         -       $ 85,250  

 

(1)

This column reflects the aggregate grant date fair value of options granted under our 2018 Stock Option Incentive Program to our named executive officers, as computed in accordance with FASB ASC Topic 718. The valuation assumptions we used in calculating the fair value of options are set forth in Note 10 to our audited financial statements included elsewhere in this prospectus. The amounts do not reflect the actual economic value that may be realized by the named executive officer.

(2)

Mr. Pham intends to retire as of December 31, 2020. See below under “-Employment Agreement-Luan Pham” for additional information concerning the anticipated terms of Mr. Pham’s separation from the Company.

(3)

Ms. Ells joined the Company as Controller on April 1, 2018 and was promoted to co-CFO on April 15, 2019 and CFO on July 1, 2019.

Employment Arrangements

We have entered into employment agreements with each of our named executive officers. The employment agreements generally provide for a two or three year employment term that may be terminated by the Company or the executive with 60 days prior written notice, and set forth the executive’s annual salary, target bonus, if any, eligibility for employee benefits, the terms of equity grants, customary proprietary information assignment provisions, and non-competition and non-solicitation restrictions. The key terms of employment with our named executive officers are further described below, along with the key terms of amended employment agreements that will become effective upon the closing of this offering. The amended employment agreements are attached as exhibits to the registration statement of which this prospectus forms a part.

 

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Paul Hodge

We entered into an employment agreement with Paul Hodge, our President and Chief Executive Officer, effective January 1, 2018, which sets forth the terms and conditions of his employment with us. Mr. Hodge’s base salary has been increased from time to time by the Board of Directors by means of addenda thereto, and is currently $250,000 per year.

Mr. Hodge is eligible for an annual bonus targeted at 40% of his annual salary at the discretion of the Company’s board of directors.

Prior to entering his employment agreement, we granted Mr. Hodge stock options to purchase 50,000 shares of common stock, which fully vested on February 24, 2019, and have an exercise price of $2.00 per share. In connection with the execution of his employment agreement, we issued to Mr. Hodge stock options to purchase 60,000 shares of common stock which fully vested on February 21, 2020. The options have an exercise price of $9.00 per share. In April 2020 we issued to Mr. Hodge (i) further stock options to purchase 16,566 shares of common stock, which vest in equal parts annually on the grant date over a four year period, and have an exercise price of $13.05 per share, and (ii) 1,724 shares of common stock, subject to certain transfer restrictions, which vested immediately upon issuance.

Mr. Hodge’s employment agreement provides that either the Company or Mr. Hodge may terminate employment upon 60 days’ prior written notice to the other for any reason. In such event, Mr. Hodge is entitled to his base salary through the termination date.

On September 10, 2020, we entered into an amended employment agreement with Mr. Hodge that will become effective upon the closing of this offering. The amended employment agreement provides for the continuation of Mr. Hodge’s current base salary of $250,000 per year. Mr. Hodge will be eligible for an annual bonus during each calendar year of the amended employment agreement, with a target bonus of 50% of base salary and a maximum bonus of 100% of base salary. Mr. Hodge will also be eligible to receive equity awards under the 2020 Plan. If Mr. Hodge’s employment is terminated by the Company without “cause” or by Mr. Hodge for “good reason” (each as defined in the amended employment agreement), Mr. Hodge will be entitled to a lump sum payment equal to twelve months of base salary, plus payment of COBRA Premiums for up to twelve months. If Mr. Hodge’s employment is terminated by the Company without “cause” or by Mr. Hodge for “good reason” within two years after the occurrence of a change in control (as defined in the amended employment agreement), Mr. Hodge will be entitled to a lump sum payment equal to twenty-four months of base salary, plus payment of COBRA Premiums for up to eighteen months. The amended employment agreement also contains customary confidentiality, non-competition and non-solicitation provisions.

Luan Pham

Prior to entering his employment agreement, on February 24, 2016 we granted Luan Pham, our Chief Marketing and Revenue Officer, stock options to purchase 20,000 shares of common stock, which vest over a four year period, and have an exercise price of $2.00 per share. We entered into an amended employment agreement with Mr. Pham, effective November 1, 2017, which sets forth the terms and conditions of his employment with us. Mr. Pham’s terms of employment have been amended from time to time by Company by means of addenda to his employment agreement, and his base salary is currently $200,000 per year. In January 2018, we issued to Mr. Pham stock options to purchase 5,000 shares of common stock, which vested immediately, for $7.50 per share. In May 2019, we issued to Mr. Pham further stock options to purchase 26,666 shares of common stock and 53,334 shares of common stock, respectively, the former vesting in equal parts on each anniversary of the

 

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grant date over a two-year period, and the latter upon certain revenue targets, each for $12.32 per share. In June 2020 we issued to Mr. Pham further stock options to purchase 4,024 shares of common stock, which options vest over a four-year period, and have an exercise price of $13.05 per share.

Mr. Pham’s employment agreement provides that either the Company or Mr. Pham may terminate employment upon 60 days’ prior written notice to the other for any reason. In such event, Mr. Pham is entitled to his base salary through the termination date.

On September 10, 2020, we entered into an amended employment agreement with Mr. Pham that will become effective upon the closing of this offering. The term of the amended employment agreement automatically ends December 31, 2020, the date upon which Mr. Pham intends to retire from the Company. The amended employment agreement provides for the continuation of Mr. Pham’s current base salary of $200,000 per year. Upon Mr. Pham’s retirement from the Company, certain stock options held by Mr. Pham will have their term extended to December 31, 2025. The amended employment agreement also contains customary confidentiality, non-competition and non-solicitation provisions.

Valerie Ells

We entered into an employment agreement with Valerie Ells, our Chief Financial Officer, when she was hired as our controller, effective April 1, 2018, which sets forth the terms and conditions of her employment with us. Ms. Ells has been promoted and her base salary has been increased from time to time by Company by means of addenda to her employment agreement, and is currently $200,000 per year.

Ms. Ells is eligible for an annual bonus targeted at 26.5% of her annual salary at the discretion of the Company’s Chief Executive Officer.

In connection with the execution of her employment agreement, we issued to Ms. Ells stock options to purchase 20,000 shares of common stock. The options vest over a four-year period and have an exercise price of $9.00 per share. In June 2018 we issued to Ms. Ells further stock options to purchase 2,000 shares of common stock, which options vest over a four-year period and have an exercise price of $9.00 per share. In May 2019 we issued to Ms. Ells further stock options to purchase 18,000 shares of common stock, which options vest over a four-year period and have an exercise price of $12.32 per share. In January 2020 we issued to Ms. Ells further stock options to purchase 20,000 shares of common stock, which options vest over a four-year period and have an exercise price of $14.50 per share. In April 2020 we issued to Ms. Ells (i) further stock options to purchase 9,940 shares of common stock, which options vest over a four-year period, and have an exercise price of $13.05 per share, and (ii) 1,172 shares of common stock, subject to certain transfer restrictions, which vested immediately upon issuance.

Ms. Ells’s employment agreement provides that either the Company or Ms. Ells may terminate employment upon 60 days’ prior written notice to the other for any reason. In such event, Ms. Ells is entitled to her base salary through the termination date.

On September 10, 2020, we entered into an amended employment agreement with Ms. Ells that will become effective upon the closing of this offering. The amended employment agreement provides for the continuation of Ms. Ells’ current base salary of $200,000 per year. Ms. Ells will be eligible for an annual bonus during each calendar year of the amended employment agreement, with a target bonus of 50% of base salary and a maximum bonus of 100% of base salary. Ms. Ells will also be

 

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eligible to receive equity awards under the 2020 Plan. If Ms. Ells’ employment is terminated by the Company without “cause” or by Ms. Ells for “good reason” (each as defined in the amended employment agreement), Ms. Ells will be entitled to a lump sum payment equal to twelve months of base salary, plus payment of COBRA Premiums for up to twelve months. If Ms. Ells’ employment is terminated by the Company without “cause” or by Ms. Ells for “good reason” within two years after the occurrence of a change in control (as defined in the amended employment agreement), Ms. Ells will be entitled to a lump sum payment equal to twenty-four months of base salary, plus payment of COBRA Premiums for up to eighteen months. The amended employment agreement also contains customary confidentiality, non-competition and non-solicitation provisions.

Retirement Plans

We have not maintained, and do not currently intend to maintain, a defined benefit pension plan or nonqualified deferred compensation plan.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information about outstanding equity awards granted to our named executive officers that remained outstanding as of December 31, 2019.

 

     Option Awards  

Name

   Grant Date     Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
 

Paul Hodge

     2/24/2016       50,000       0       2.00       2/23/2026  
     2/21/2018       30,000       30,000 (1)      9.00       2/20/2023  

Luan Pham

     2/24/2016       15,000       5,000 (2)      2.00       2/23/2026  
     1/25/2018       5,000       0       7.50       1/24/2028  
     5/08/2019       4,792       48,452 (3)      12.32       5/7/2029  
     5/08/2019       13,334       13,332 (4)      12.32       5/7/2029  

Valerie Ells

     3/11/2018       5,000       15,000 (5)      9.00       3/10/2028  
     6/15/2018       500       1,500 (6)      9.00       6/14/2028  
     5/01/2019       -         18,000 (7)      12.32       4/30/2029  

 

(1)

One-half of total option grant vesting annually at the anniversary of the grant date. Unvested options accelerate upon certain change of control transactions pursuant to the NEO’s employment agreement with the Company.

(2)

One-quarter of total option grant vesting annually at the anniversary of the grant date. Unvested options accelerate upon certain change of control transactions pursuant to the NEO’s employment agreement with the Company.

(3)

Vesting periods begin upon meeting certain revenue thresholds. Unvested options accelerate upon certain change of control transactions pursuant to the NEO’s employment agreement with the Company.

(4)

One-half of total option grant vesting annually at the anniversary of the grant date. Unvested options accelerate upon certain change of control transactions pursuant to the NEO’s employment agreement with the Company.

(5)

One-quarter of total option grant vesting annually at the anniversary of the grant date. Unvested options accelerate upon certain change of control transactions pursuant to the NEO’s employment agreement with the Company.

(6)

One-quarter of total option grant vesting annually at the anniversary of the grant date. Unvested options accelerate upon certain change of control transactions pursuant to the NEO’s employment agreement with the Company.

(7)

One-quarter of unvested options are vesting annually at the anniversary of the grant date. Unvested options accelerate upon certain change of control transactions pursuant to the NEO’s employment agreement with the Company.

 

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Director Compensation

During the fiscal year ended December 31, 2019, Mr. Hodge, who is our Chief Executive Officer, Mr. Wetherald, Mr. Benzino and Mr. Hamilton received no additional fees, reimbursements, equity awards or other compensation for their service as members of our board of directors. In 2019 Mr. Hamilton received a salary of $201,353 in connection wit