Laird Superfood Inc

The accompanying consolidated financial statements include the accounts of Laird Superfood, Inc., a Delaware corporation, and its wholly owned subsidiary, Picky Bars, LLC, (collectively, the “Company” or “Laird Superfood” or “we” or "our").

Nature of Operations

Laird Superfood creates highly differentiated, plant-based, and functional foods. The core pillars of the Laird Superfood platform are currently Superfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, harvest snacks and other food items, and functional roasted and instant coffees, teas and hot chocolate. The Company was founded in2015.

Basis of Accounting

The consolidated financial statements include the accounts of the Company. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and rules and regulations of the Securities and Exchange Commission (“SEC”). Operating results include the years ended* December 31, 2023and2022*.

Principles of Consolidation

All significant intercompany accounts and transactions have been eliminated in our accompanying consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that arenot readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions and given the subjective element of the estimates and assumptions made, actual results* may*differ from estimated results. The most significant estimates and judgments include those related to allowances for credit losses and returns, inventory obsolescence, goodwill, intangible assets, valuation allowance for deferred taxes, reserves on prepaid expenses, and fair value of stock-based compensation.

Segment Reporting

The Company currently hasone operating segment. In accordance with ASC280, Segment Reporting (“ASC280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management reviews financial information presented on a consolidated basis for purposes of allocation of resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.

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

See Note12 for additional information regarding sales by platform within the Company’s single segment.

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Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash are highly liquid instruments with an original maturity ofthree months or less when purchased. For the purposes of the consolidated statements of cash flows, the Company includes cash on hand, cash in clearing accounts, cash on deposit with financial institutions, investments with an original maturity ofthree months or less, and restricted cash in determining the total balance.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows.

Amounts in restricted cash represent those that are required to be set aside by the following contractual agreements:

Cash, cash equivalents, and restricted cash balances that exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurable limits as of* December 31, 2023and December 31, 2022*totaled $1,304,420 and $2,747,721, respectively. The Company has never experienced any losses related to these balances. The Company’s cash, cash equivalents, and restricted cash are with what the Company believes to be a high-quality financial institution and considers the risks associated with these funds in excess of FDIC insurable limits to be low.

Accounts Receivable

Accounts receivable consist principally of trade receivables, which are recorded at the invoiced amount, net of allowances for credit losses. Trade receivables donot bear interest. Receivables are considered past due or delinquent according to contract terms. Management closely monitors outstanding balances and writes off accounts receivable as they are determined uncollectible. The Company provides for estimated losses on accounts receivable based on a forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Based on these factors, management determined allowances for credit losses were required in the amounts of $243,416 and $77,436 as of* December 31, 2023and2022*, respectively.

Inventory

Inventory is stated at the lower of cost or net realizable value, or the value of consideration that can be received upon sale of said product, and approximate costs determined on thefirst-infirst-out basis and consists primarily of raw materials and packaging and finished goods and includes co-packing fees, indirect labor and allocable overhead. The following table presents the components of inventory, net of reserves:

The Company periodically reviews the value of items in inventory and provides write-offs of inventory based on current market assessment, which are charged to cost of goods sold. For the years ended* December 31, 2023and2022*, the Company recorded $1,273,171 and $2,761,476, respectively, of costs related to the disposal of and reserve for obsolete inventory included in costs of goods sold. The elevated inventory obsolescence at the end of2022 is the result of the exit and disposal activities discussed later in this Note1 to our Annual Report on Form10-K, and a product withdrawal occurring in thefirst quarter of2023.

As of* December 31, 2023inventory reserves totaled $1,029,657. This is comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $385,069, as well as raw materials and finished goods specifically identified for disposal related to a product quality issue of $306,276 and discontinued inventories of $338,312. As of December 31, 2022,*inventory reserves totaled $1,545,033. This was comprised of estimated reserves based on inventory turnover, quantities on hand, and expiration dates of $746,966, reserves specifically identified for disposal related to a product quality issue of $559,042 and discontinued inventories following exit activities of $239,025.

As of* December 31, 2023and2022*, the Company had a total of $449,242 and $897,108, respectively, of prepayments for future raw materials inventory, which is included in prepaid expenses on the consolidated balance sheets.

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Property and Equipment

Property and equipment are valued at cost, net of accumulated depreciation. Expenditures for maintenance and repairs that donot extend the useful life or increase the value of the assets are charged to expense in the period incurred. Additions and betterments are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for depreciation purposes for furniture and equipment range from2 to5 years. The useful life for leasehold improvements is the lesser of the lease term or the useful life. Construction in progress isnot depreciated until such a time that the assets are completed and placed into service.

Fixed Assets Held-for-Sale

Long-lived assets identified by the Company for sale, which have met all criteria to be classified as held for sale, are disclosed separately on the balance sheet. Fixed assets held for sale are measured at the lower of the assets carrying amount or fair value less costs to sell, and depreciation isno longer recorded. See Note4 for more information.

Leases

In accordance with ASC842, Leases, the Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. We categorize leases at their inception as either operating, finance, or short-term leases and determine if an arrangement contains an embedded lease. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and, thereafter, if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. Lease agreements effective during the year ended* December 31, 2023and2022* cover, or covered, office space, warehouse and distribution space, vehicles, and equipment. All of our long-term leases are operating leases. Operating leases are included in right-of-use assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets.

In addition to rent, the leases* mayrequire the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected tonot* separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and liability. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use a secured incremental borrowing rate as the discount rate for the present value of lease payments when the rate implicit in the contract isnot readily determinable. For operating leases with variable payments dependent upon an index or rate that commenced subsequent to the adoption of ASC842, Leases, we apply the active index or rate as of the lease commencement date. Variable lease paymentsnot based on an index or rate arenot included in the operating lease liability as they cannot be reasonably estimated and are recognized in the period in which the obligation for those payments is incurred. Leases that have a term oftwelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases arenot included on the consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.

We are the lessor in a sublease agreement. This lease is an operating lease and is recognized straight line over the lease term with a related sublease rental asset accounting for abatements and initial direct costs.

Revenue Recognition

The Company’s significant accounting policy for revenue was updated as a result of the adoption of ASC606, Revenue from Contracts with Customers (ASC606). The Company recognizes revenue in accordance with thefive-step model as prescribed by ASC606 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC606, the Company performs the followingfive steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note12 for additional information regarding revenue recognition. The Company has elected, as a practical expedient, to account for the shipping and handling as fulfillment costs, rather than as a separate performance obligation. Methodologies for determining these provisions are dependent on customer pricing and promotional practices. The Company records reductions to revenue and a refund liability for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates will be based on industry-based historical data, historical sales returns, if any, analysis of credit memo data, and other factors known at the time.

Cost of Goods Sold

Cost of goods sold includes material, labor, and overhead costs incurred in the storage and distribution of products sold in the period. Material costs include the cost of raw materials and packaging. Labor and overhead costs consist of indirect product costs, including wages and benefits for manufacturing, planning, fulfillment, and logistics personnel, facility costs, and inbound and outbound freight. Outbound freight costs are also included in cost of goods sold.

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Shipping and Handling

Costs of shipping and handling related to sales revenue are included in cost of goods sold. Shipping and handling costs totaled $5,223,257 and $6,525,439 for the years ended* December 31, 2023and2022*, respectively. Income generated from shipping costs billed through to customers was included in Sales, net in the consolidated statements of operations. Shipping income totaled $899,921 and $1,099,358 for the years ended* December 31, 2023and2022*, respectively.

Research and Product Development

Amounts spent on research and development activities are expensed as incurred as research and product development expense on the consolidated statements of operations. Research and product development expense was $219,723 and $427,537 for the years ended* December 31, 2023and2022*, respectively.

Advertising

Advertising costs are expensed when incurred. Advertising expenses for the years ended* December 31, 2023and2022* was $3,825,969 and $6,914,706, respectively.

Marketing

Marketing costs are expensed when incurred. Marketing expenses for the years ended* December 31, 2023and2022* was $3,721,973 and $3,797,761, respectively.

Income Taxes

Income taxes provide for the tax effects of transactions reported in the consolidated financial statements and consist of income taxes currently due and deferred tax assets and liabilities. The Company* may*also be subject to interest and penalties from taxing authorities on underpayment of income taxes. In such an event, interest and penalties are included in income tax expense. Deferred tax assets and liabilities are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to depreciable assets (use of different depreciation methods and lives for financial statement and income tax purposes), stock-based compensation, deferred rent, and net operating losses. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.

Stock Incentive Plan

The compensation cost relating to share-based payment transactions is recognized in the consolidated financial statements. The cost is measured based on the grant date fair value of the equity or liability instruments issued. Compensation cost for all employee stock awards is calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Compensation cost for all consultant stock awards is calculated and recognized over the consultant’s service period based on the grant date fair value of the equity or liability instruments issued. Upon exercise of stock option awards or vesting of restricted stock units ("RSUs") and market-based stock units ("MSUs"), recipients are issued shares of common stock. Pre-vesting forfeitures result in the reversal of all compensation cost as of the date of termination; post-vesting cancellation doesnot.

Earnings per Share

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

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Indefinite Lived Intangible Assets

Indefinite lived intangible assets are valued at cost. The Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the indefinite lived intangible assets are less than the carrying amounts. Upon considering these factors, the Company determines whether ornot it is more likely thannot that the fair values of the assets are less than the carrying amounts. If the fair value is less than the carrying value, impairment would be recognized.

Definite Lived Intangible Assets, net

Definite lived intangible assets are valued at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for amortization purposes range between3 and 10 years. Amortization expense is allocated to general and administrative expense. The Company assesses qualitative factors each reporting period to determine whether events and circumstances exist that indicate that the fair values of the definite lived intangible assets were less than the carrying amounts.

Goodwill

Goodwill represents the excess of purchase price over the assigned fair values of the assets acquired and liabilities assumed in conjunction with a business combination. Goodwill is reviewed for impairment annually as of* December 31,or whenever events occur or circumstances change that indicate goodwill maybe impaired. In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-not (more than50%) that the fair value of goodwill is less than its carrying amount. When performing a qualitative assessment, the Company evaluates factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of goodwill is less than its carrying amount, or if the Company choosesnot* to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the fair value,not to exceed the total amount of goodwill.

Employee Benefit Plan

The Company sponsors a defined contribution401(k) plan (the*“401*(k) plan”) for all employees18 years of age or older. The401(k) plan was initiated on* July 1, 2018.Employee contributions maybe made on a before-tax basis, limited by Internal Revenue Service regulations. In2023,* the Company established a 3% safe harbor contribution which we expect to remit in thefirst quarter of2024. No contributions were remitted during the years ended* December 31, 2023or2022.* As of* December 31, 2023,there were $155,815 of401*(k) contribution liabilities included in accrued expenses on the consolidated balance sheets. The Company recorded related expenses as follows:

JOBS Act Accounting Election

The Company qualifies as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. An emerging growth company can elect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) isno longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. Currently, the Company has elected to file as an emerging growth company defined under the JOBS Act, and as such, these consolidated financial statements* may**not* be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

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Exit and Disposal Costs

The Company follows the guidance in ASC420, Exit or Disposal Cost Obligations, to record exit and disposal related costs. The Company recorded $8.7 million of exit and disposal costs in thefourth quarter of2022 and insignificant residual costs in the year ended* December 31, 2023,associated with the closure of the Sisters, Oregon manufacturing sites and subsequent transition to a co-manufacturing model for all production and fulfillment. ASC420* requires the recognition of costs associated with exit or disposal activities when they are incurred, generally the cease-use date. Exit and disposal activities are summarized below:

Loss Contingencies

We* maybe subject to contingencies arising in the ordinary course of business, such as product liability and other product-related litigation, commercial litigation, environmental claims and proceedings, government investigations and guarantees and indemnifications. In assessing contingencies related to legal and environmental proceedings that are pending against the Company, or unasserted claims that are probable of being asserted, we record accruals for these contingencies to the extent that we conclude that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, we accrue that amount. Alternatively, whenno* amount within a range of loss appears to be a better estimate than any other amount, we accrue the lowest amount in the range. We record anticipated recoveries under existing insurance contracts when recovery is assured.

Recoveries on claims for business interruptions

In thefirst quarter of2023, we discovered a product quality issue with coconut milk powder fromone of our suppliers and immediately initiated a voluntary product withdrawal and contacted all impacted wholesale customers and e-commerce consumers to aggressively pull back as much as of the affected product as possible. In connection with this withdrawal, we incurred costs associated with inventory obsolescence, quality testing, and remedial discounts and replacement orders of $0.5 million in thefourth quarter of2022 and $0.4 million in thefirst quarter of2023. In addition, we implemented a robust new sensory testing program to prevent future quality issues. In thethird quarter of2023, we reached settlement with the vendor and have recognized $0.3 million of recoveries to date which are included in cost of goods sold in the consolidated statements of operations. As of* December 31, 2023,*$0.1 million of these recoveries are included in current assets on the consolidated balance sheets.

Recently Adopted Accounting Pronouncements

In* June 2016,the FASB issued ASUNo.* 2016-13, “Financial Instruments – Credit Losses (“Topic326”): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs2018-19 (issued* November 2018),2019-04 (issued April 2019),2019-05 (issued May 2019),2019-11 (issued November 2019),2020-02 (issued February 2020)and2020*-03 (issued* March 2020).Topic326* modifies the measurement and recognition of credit losses for most financial assets and certain other instruments, requiring the use of forward-looking expected credit loss models based on historical experience, current economic conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount, which* mayresult in earlier recognition of credit losses under the new standard. It also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The standard requires a modified retrospective approach with a cumulative effect adjustment to retained earnings. ASU2016*-13 is effective for the Company’s annual periods beginning after* December 15, 2022,including interim periods within those fiscal years. We adopted ASU2016*-13 in thefirst quarter of2023. The adoption hadno material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In* November 2023,the Financial Accounting Standards Board (“FASB”) issued ASU2023*-07, Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The expanded annual disclosures are effective for our year ending* December 31, 2024,and the expanded interim disclosures are effective in2025* and will be applied retrospectively to all prior periods presented. The Company is currently evaluating the impact that ASU2023-07 will have on our consolidated financial statements.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures, which requires, among other things, additional disclosures primarily related to the income tax rate reconciliation and income taxes paid. The expanded annual disclosures are effective for our year ending* December 31, 2025.The Company is currently evaluating the impact that ASU2023*-09 will have on our consolidated financial statements and whether we will apply the standard prospectively or retrospectively.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before the consolidated financial statements are available to be issued. The Company has evaluated events and transactions subsequent to* December 31, 2023* for potential recognition of disclosure in the consolidated financial statements.

On* February 23, 2024,the Company issued 1,430,500 stock options to employees from the2020* Omnibus Incentive Plan. These awards have an exercise price of $0.73 and vest infive equal annual tranches ending* February 28, 2029.*

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The following table presents the components of prepaid expenses and other current assets:

On* September 2, 2021,the Company entered into a revolving line of credit with Wells Fargo Bank National Association in a principal amountnot* exceeding $9,500,000. The line of credit was renewed on* September 1, 2022,with a maturity date of August 31, 2023,and the available credit was reduced to $5,000,000. Management chosenot* to renew the line of credit, which was terminated on* August 31, 2023.The outstanding amounts under the line of credit had an interest rate calculated as Daily Simple Secured Overnight Financing Rate (“SOFR”) plus 1.5% per annum until paid in full. The balance on the line of credit was $0 as of December 31, 2023and2022*.

On* August 10, 2017,the Company entered into a revolving line of credit with East Asset Management, LLC (“East”) in a principal amountnot* exceeding the lesser of the borrowing base or $3,000,000. The outstanding amounts under the line of credit had a fixed interest rate of 15% per annum until paid in full and the line of credit had a maturity date of* August 10, 2022.The loan agreement was closed on May 19, 2022.*

A secondary line of credit with East in an amount up to $200,000 was available to the Company, which wasnot subject to the requirements of the borrowing base. The secondary line was available with the same draw and payback conditions as the primary line. The loan agreement was closed on* May 19, 2022.*

East was also granted a right offirst refusal on any future equity offerings by the Company to purchase up to 20% of equity in any such offerings at a 20% price per share discount, subject to certain exclusions. These rights terminated concurrently with the closure of the associated loan agreements on* May 19, 2022.*

Property and equipment, net was comprised of the following:

For the years ended* December 31, 2023and2022*, depreciation expense was $99,289 and $669,611, respectively.

Assets Classified as Held-for-Sale

In thefirst quarter of2022, the Company entered into a vacant land real estate sale agreement for the sale of excess unused lots in Sisters, Oregon for a sales price of $1,572,512. The Company sold the land in thesecond quarter of2022 resulting in a gain of $573,818 included in general and administrative expenses.

In thesecond quarter of2022, the Company entered into a purchase order agreement for the sale of the intermittent motion form production line for a sales price of $100,000. The book value exceeded the fair market value and, as such, the Company recorded an impairment charge of $100,426 in thesecond quarter of2022. The Company sold these assets in thethird quarter of2022 for $103,240, recording a gain of $3,240 included in general and administrative expenses.

In thefourth quarter of2022, the Company entered into purchase agreements for the sale of the production equipment for a sales price of $800,000 which was received in full in2023. The book value exceeded the fair market value and, as such, the Company recorded impairment charges of $3,105,435, included in general and administrative expenses.

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Goodwill

The carrying amount of goodwill attributed to the acquisition of Picky Bars was $6,486,000 as of the acquisition date. In the last month of thefirst quarter of2022, management determined the sustained decline in stock price, coupled with changes in market conditions, was a potential impairment triggering event. The Company performed a qualitative and quantitative analysis on the Company's goodwill for impairment, concluding that the fair value of goodwill as calculated using a discounted cash flow model exceeds the carrying value, this indicating that goodwill is impaired. As such, the Company recorded a goodwill impairment of $0 and $6,486,000 for the years ended* December**31,* 2023 and2022. There wasno goodwill as of* December 31, 2023or December 31, 2022.*

Intangible Assets, Net

Intangible Assets, net is comprised of the following:

The weighted-average useful life of all the Company’s intangible assets is 7.0 years.

For the years ended* December 31, 2023and2022*, amortization expense was $206,887 and $448,460, respectively.

Definite Lived Intangible Assets

Definite life intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value* may**not* be recoverable. Examples include a significant adverse change in the extent or manner in which we use the asset, or an unexpected change in financial performance. When evaluating definite life intangible assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset. The Company considered the above factors when assessing whether the Company’s long-lived assets will be recoverable.

Based on the analysis of the qualitative factors above, management determined that there wereno triggering events or impairment charges in the year ended* December 31, 2023.In2022,* with changes in market conditions and developments in the forecasts for e-commerce and wholesale sales of legacy Picky Bars products were triggering events during the year ended* December 31, 2022.*

The Company performed a qualitative and quantitative analysis over the period* May 1, 2021through December 31, 2022on the Company's estimates of the fair values of acquired customer relationships utilizing the Multiperiod Excess Earnings Method variation of discounted cash-flow model, which exceeded the carrying value, indicating that these assets were impaired. In the year ended December 31, 2022,*the Company recorded impairment charges of $1,243,000, net of accumulated amortization.

The Company performed a qualitative and quantitative analysis over the period* May 1, 2021through December 31, 2022on the Company's estimates of the fair values of acquired trade names utilizing the Relief From Royalty Method variation discounted cash-flow model, which exceeded the carrying value, indicating that these assets were impaired. In the year ended December 31, 2022,*the Company recorded impairment charges of $1,776,006, net of accumulated amortization.

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In addition, the Company recorded impairment charges of $103,574 on internal use production software, for which the Company realizedno operational benefits following the final in-house production run in* December 2022*upon the transition to a co-manufacturing business model.

Intangible assets are amortized using the straight-line method over estimated useful lives ranging fromthree tofifteen years. The estimated amortization expense for each of the nextfive years and thereafter is as follows:

Indefinite Lived Intangible Assets

On* August 3, 2015,the Company entered into a license agreement with the Company’s co-founder Laird Hamilton (the “LH License”). The LH License stated Laird Hamilton’s contribution to the Company was in the form of intellectual property, granting the Company the right to use Laird Hamilton’s name and likeness. This contribution, which was reported on the balance sheets as of December 31, 2023and2022,* was valued at $132,000 and satisfied with the issuance of 660,000 shares of common stock. The Company has determined that the intangible asset associated with the LH License has an indefinite life, as there isno foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company.

On* May 2, 2018,the Company entered into a license agreement with Gabrielle Reece, who is married to Mr. Hamilton (the “GR License”). Pursuant to the GR License, Ms. Reece granted the Company rights to her name, signature, voice, picture, image, likeness and biographical information commencing on July 1, 2015.This contribution, which is reported on the consolidated balance sheets as of December 31, 2023and2022,* was valued at $100 based on the consideration exchanged. The Company has determined that the intangible asset associated with the GR License has an indefinite life, as there isno foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the Company.

On* November 19, 2018,*the Company executed a License and Preservation Agreement with Mr. Hamilton and Ms. Reece which superseded the predecessor license agreements with both individuals. The agreement added specific terms related to non-competition and allowable usage of the property under the license.No additional consideration was exchanged in connection with the agreement and the life of the agreement was set at 100 years.

On* May 26, 2020,the Company executed a License and Preservation Agreement with Mr. Hamilton, and Ms. Reece (the“2020* License”), which superseded the predecessor license and preservation agreement with both individuals. Among other modifications, the agreement (i) modified certain approval rights of Mr. Hamilton and Ms. Reece for use of their respective images, signatures, voices, and names (other than those owned by the Company), rights of publicity and common law and statutory rights to the foregoing in the Company’s products, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additionalten-year terms upon the expiration of the initialone-hundred year term.No additional consideration was exchanged in connection with the agreement.

Lessee

The Company leased its warehouse space under a commercial lease with RII Lundgren Mill, LLC, dated* March 1, 2018.The lease commenced March 1, 2018.The initial lease term wasten years, and the Company had the option to renew the lease fortwo* additionalfive-year periods.

The Company executed asecond lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated* December 17, 2018.The lease commenced on July 1, 2019.However, for accounting purposes the lease commencement date was June 6, 2019.*The initial lease term wasten years.

The Company executed athird lease for additional warehouse and office space under a commercial lease with RII Lundgren Mill, LLC, dated* October 1, 2021.The lease commenced on October 1, 2021.*The initial lease term wasten years.

The Company executed a lease cancellation agreement dated* December 12, 2022.Under this agreement, the Company'sthree* leases with RII Lundgren Mill, LLC, were terminated effective* January 31, 2023,and the Company agreed to pay $1,550,000, of which $500,000 was remitted in2022* and $1,050,000 was satisfied in thefirst quarter of2023. The Company ceased to realize any operational benefit from the leases as of* December 31, 2022,and recorded losses on lease termination consisting of the write off of the related right of use assets, net of lease liabilities, as well as the lease termination fee, for a total of $3,596,365, which were included in General and administrative expenses for the year ended December 31, 2022.*

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The Company assumed an operating lease in the acquisition of Picky Bars, LLC on* May 3, 2021.The initial lease term is 62 months, and the Company has the option to renew the lease fortwo* additionalthree-year periods.

The Company entered into a sublease agreement with Somatic Experiencing Trauma Institute with a commencement date of* January 1, 2023,for a 5,257 square foot office space in Boulder, Colorado which serves as the Company's new headquarters. This lease will expire on July 1, 2027.*

The components of lease expense were as follows:

As of* December 31, 2023*, future minimum payments during the nextfour years are as follows:

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Lessor

The Company executed a sublease agreement of the Picky Bars, LLC operating lease on* March 1, 2022.The lease commenced on April 1, 2022.The initial lease term expires on April 30, 2025.The lease meets all of the criteria of an operating lease and is accordingly recognized straight line over the lease term with a related sublease rental asset accounting for abatements and initial direct costs. The Company had $11,881 and $18,846 of sublease rental assets as of December 31, 2023* and* December 31, 2022*, respectively, included in prepaid and other current assets on the consolidated balance sheets.

The components of rental income were as follows:

Our future minimum payments to be received during the nexttwo years are as follows:

The Company had a tax net loss for the years ended* December 31, 2023and2022* and therefore has recordedno assessment of current federal income taxes. The Company is subject to minimum state taxes for various jurisdictions as well as subject to franchise taxes considered income taxes under ASC740. A reconciliation of income tax expense at the federal statutory rate to the income tax provision at the Company's effective rate is as follows:

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The Company’s deferred tax assets and liabilities consisted of the following:

As of* December 31, 2023,the Company didnot* provide a current or deferred U.S. federal income tax provision or benefit for any of the periods presented because the Company has reported cumulative losses since inception. The Company has recorded a provision for state income taxes and a corresponding current state income tax payable of approximately $7,373 and $9,803 as of* December 31, 2023and2022,* respectively.

As of* December 31, 2023and2022*, the Company had NOLs totaling approximately $136.8 million and $118.6 million, respectively. At* December 31, 2023and2022*, the Company had federal NOLs totaling approximately $1.9 million from2017 and prior years that can be carried forward for20 years and which begin to expire in2036. At* December 31, 2023and2022*, the Company had federal NOLs totaling approximately $77.8 million and $67.5 million, respectively, from2018 and subsequent years that can be carried forward indefinitely. At* December 31, 2023and2022*, the Company had state NOLs totaling $57.1 million and $49.1 million, respectively, that can be carried forward for between15 and20 years. At* December 31, 2023and2022*, the Company had credits totaling $0.2 million that can be carried forward forfive years. At* December 31, 2023and2022*, the Company had and other carryforwards totaling $0.6 million that can be carried forward for betweenone andfive years.

The use of net operating losses* maybe subject to certain limitations, such as those triggered by ownership changes under Section382* of the Internal Revenue Code. Because these provisions, the use of a portion of our NOLs and tax credit carryforwards* maybe limited in future periods. Further, a portion of the carryforwards may*expire before being applied to reduce future income tax liabilities.

The Company assesses its deferred tax assets and liabilities to determine if it is more likely thannot, they will be realized; ifnot, a valuation allowance is required to be recorded. Management has determined it is more likely thannot that the deferred tax assets would be realized, thus a full valuation allowance was recorded against the deferred tax assets. The Company* mayreduce the valuation allowance against definite-lived deferred tax assets at such a time when it becomes more likely thannot* that the definite-lived deferred tax assets will be realized. The change in the valuation allowance for deferred tax assets and liabilities for the years ended* December 31, 2023* and2022 were net increases of $1.8 million and $10.8 million, respectively.

GAAP requires management to evaluate and report information regarding its exposure to various tax positions taken by the Company. The Company has determined whether there are any tax positions that have met the recognition threshold and has measured the Company’s exposure to those tax positions. Management believes that the Company has adequately addressed all relevant tax positions and that there areno unrecorded tax liabilities.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. U.S. and state jurisdictions have statutes of limitations that generally range from3 to5 years.

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The Company adopted an incentive plan (the*“2020* Omnibus Incentive Plan”) on* September 22, 2020,to provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards and cash bonus awards to Company employees, employees of the Company’s affiliates, non-employee directors and certain consultants and advisors. The Company is authorized to award 386,475 shares and has 2,627,977 shares available for issuance under the2020* Omnibus Incentive Plan, excluding shares available to be issued upon exercise of outstanding options and rights. Previously, the Company had adopted its2018 Equity Incentive Plan and2016 Stock Incentive Plan (together with the2020 Omnibus Incentive Plan, the “Stock Incentive Plans”), under which the Company had issued stock options and restricted stock units. Following the effective date of the2020 Omnibus Incentive Plan,no additional awards* maybe made under the2018* Equity Incentive Plan or2016 Stock Incentive Plan. The Stock Incentive Plans were established to provide eligible individuals with an incentive to contribute to the Company’s success and to operate and manage the Company’s business in a manner that will provide for its long-term growth and profitability and that will benefit the Company’s shareholders and other stakeholders, including employees and customers. The Stock Incentive Plans are also intended to provide a means of recruiting, rewarding, and retaining key personnel.

Stock Options

The Stock Incentive Plans prescribe various terms and conditions for the award of options and the total number of shares authorized for this purpose. For options, the strike price is equal to the fair market value of the Company’s stock price at the date of grant. Generally, options become exercisable based on years of service and vesting schedules, and expire after (i) a period often years from the date of grant, (ii)three months following the date of termination of employment from the Company, (iii)one year following the date of termination from the Company by reason of death or disability, (iv) the date of termination of employment for cause, or (v) thefifth anniversary of the date of the grant if it is held by a10 percent or greater stockholder.

The following tables summarize the Company’s stock option activity:

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The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option-pricing model. ASC718, “Compensation- Stock Compensation” (“ASC718”), requires the use of the fair-value-based method for measuring the value of stock-based compensation. The estimated fair value of each grant of stock options awarded during the years ended* December 31, 2023and2022* was determined using the following assumptions:

The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different inputs and assumptions, the Company’s share-based compensation expense could be materially different for future awards. The grant-date fair value of stock options was estimated at the time of grant using the following weighted-average inputs and assumptions in the Black-Scholes option pricing model:

Restricted Stock Units

The following tables summarize the Company’s RSU activity:

The Company estimates the fair value of each restricted stock unit using the fair value of the Company’s stock on the date of grant.

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Market-Based Stock Units

The following tables summarize the Company’s market-based stock unit ("MSU") activity:

These MSUs vest upon the30-day weighted average stock price reaching or exceeding established targets, after reaching certain time targets. We estimate the grant-date fair value of the MSUs using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rate of return and dividend yield. Expected volatility within the index are derived using historical volatility of a selected peer group over a period equal to the length of the performance period. We base the risk-free rate of return on the yield of azero-coupon U.S. Treasury bond with a maturity equal to the performance period and assume a 0% dividend rate. Compensation expense for these MSUs is recognized over the requisite service period regardless of whether the market conditions are satisfied.

Employee Stock Purchase Plan

On* September 25, 2020,the Company established an Employee Stock Purchase Plan (“ESPP”) which allows employees of the Company to purchase common stock of the Company through accumulated payroll deductions. Offerings under this plan have a duration ofsix* months. On the exercise date, the participant* mayacquire a maximum of 650 shares per participant, per offering period, at the lower of 85% of the market value of a share of our common stock on the enrollment date or the exercise date. Participants mayterminate their interest in a given offering or a given exercise period by withdrawing all of their accumulated payroll deductions at any time prior to the end of the offering period. The fair value of the estimated number of shares to be issued under each offering is determined using a component valuation model. This plan was terminated in thefourth* quarter of2022.

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Stock-Based Compensation

Stock-based compensation expense is recognized ratably over the requisite service period for all awards. The following tables summarize the Company’s stock-based compensation recorded as a result of applying the provisions of ASC718 to equity awards:

During the years ended* December 31, 2023* and2022, respectively, there were forfeitures of MSU awards of certain members of executive leadership of $149,735 and $1,785,125, representing discrete reversals of stock compensation expense to the period.

Basic earnings (loss) per share is determined by dividing net loss attributable to Laird Superfood, Inc. common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is similarly determined, except that the denominator is increased to include the number of additional common and preferred shares that would have been outstanding if all dilutive potential common shares had been issued. Dilutive potential common shares consist of employee stock options and restricted stock units. The dilutive effect of employee stock options, restricted stock units, and market-based stock units by the Company and are calculated using the treasury stock method. Basic earnings per share is reconciled to diluted earnings per share in the following table:

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The following table details the concentration of customer accounts receivable balances in excess of10% of total trade accounts receivable at each period:

The following table details the concentration of vendor accounts payable balances in excess of10% of total accounts payable at each period:

The following table details the concentration of sales to specific customers in excess of10% of total net sales for each year and the accounts receivable from those customers at the end of each period:

The Company purchased a substantial portion of raw materials and packaging from certain suppliers. The following table details the concentration of purchases from specific suppliers in excess of10% of total purchases for each period:

In addition, our top suppliers are in a similar geographic area, which increases the risk of significant supply disruptions from local and regional events. Vietnam geographically accounted for approximately 17% and 48% of our total raw materials and packaging purchases for the years ended* December 31, 2023* and2022, respectively.

FASB ASC Topic850, Related Party Disclosures, requires that information about transactions with related parties that would make a difference in decision making shall be disclosed so that users of the consolidated financial statements can evaluate their significance. The Company conducts business with suppliers and service providers who are also stockholders of the Company. From time to time, service providers are offered shares of common stock as compensation for their services. Shares provided as compensation are calculated based on the fair value of the service provided and the most recent equity offering price (or market price post-IPO) per share. Additional related party transactions are noted below.

License Agreements

On* May 26, 2020,the Company executed a License and Preservation Agreement which superseded the predecessor license and preservation agreement with both Mr. Hamilton and Ms. Reece. Among other modifications, the agreement (i) modified certain approval rights, (ii) modified certain assignment, change of control and indemnification provisions, and (iii) granted the Company the right to extend the term of the agreement for additionalten*-year terms upon the expiration of the initialone-hundred-year term.No additional consideration was exchanged in connection with the agreement. See additional discussion related to the2020 License in Note1 of the consolidated financial statements.

Marketing Agreements

The Company has an influencer agreement with Gabby Reece to provide certain marketing services. In connection with these services, in the years ended* December 31, 2023and2022,* respectively, advertising expenses totaling $213,051 and $51,812 were included in sales and marketing expenses in the consolidated statements of operations. As of* December 31, 2023and December 31, 2022,*amounts payable to Gabby Reece of $2,688 and $16,500, respectively, are included in related party liabilities in the consolidated balance sheets.

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The Company’s primary source of revenue is sales of Coffee creamers, Hydration and beverage enhancing supplements, Harvest snacks and other food items, and Coffee, tea and hot chocolate products. The Company recognizes revenue when control of the promised good is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms, or customer pick-up, applicable to the Company’s sales. Each delivery or shipment made to athird-party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collect the sales price under normal credit terms. Additionally, the Company estimates the impact of certain common practices employed by us and other manufacturers of consumer products, such as scan-based trading, product rebate and other pricing allowances, product returns, trade promotions, sales broker commissions and slotting fees. These estimates are recorded at the end of each reporting period.

In accordance with ASC Topic606, the Company disaggregates net sales from contracts with customers based on the characteristics of the products sold:

The Company generates revenue throughtwo channels: e-commerce and wholesale:

Receivables from contracts with customers are included in accounts receivable. Contract assets include deferred cost of goods sold associated with deferred revenue and are included in finished goods inventories. Contract liabilities include deferred revenue, customer deposits, rewards programs, and refund liabilities, and are included in accrued expenses. The balances of receivables from contracts with customers, contract assets, and contract liabilities were as follow:

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