Once Upon a Farm, PBC

The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in the financial statements and related notes thereto. Critical accounting estimates are those estimates that, in accordance with GAAP, involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial statements. Management has determined that our most critical accounting estimates are those relating to revenue recognition, valuation of derivative liability, fair value of common stock and stock-based compensation. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making these estimates, actual results reported in future periods could differ materially from those estimates. The following is a summary of certain accounting estimates we consider critical. For further discussion about our accounting policies, see Note 2 “Summary of Significant Accounting Policies” to our financial statements in Part I, Item 1. in this Quarterly Report on Form 10-Q.

Revenue Recognition

Our revenue is generated through sales of Pouches, snacks and other products for babies and kids through retail channels, which include traditional brick-and-mortar stores and e-commerce platforms, as well as directly to consumers through our DTC platform that we operate. We recognize revenue when control of the products transfers to the customer, which occurs upon customer pickup or delivery of the products to the customer for retail sales or when the product is delivered to the carrier for DTC sales. Our revenue is recognized net of allowances for sales discounts and promotions and any taxes collected from consumers.

We offer sales discounts and promotions to our customers through various programs. These programs include sales incentives, trade allowances, slotting fees, including baby cooler slotting fees, coupon offers, rebates and term discounts. The costs of these sales discounts and promotions are accounted for as reductions in the transaction price. We estimate variable consideration related to the cost of sales discounts and promotions during the period the product is sold. We recognize an allowance for estimated trade discounts that have been incurred but the corresponding trade receivable was not settled as of each balance sheet date. We also recognize an accrual for the estimated cost of promotional activities. Our estimate of trade discounts and accrued promotional activities is a management estimate based on the terms and timing of our programs offered, expected participation based on our historical experience with similar programs and forecasted sales volumes.

We do not believe it is reasonably likely that there will be a material change in the estimates or assumptions used to recognize revenue. Estimates are made based on historical experience and other factors. Typically, programs that are offered have a short duration and historical differences between actual experience compared to estimated volumes, performance and redemptions have not been significant to the annual financial statements. However, if the level of redemption rates, volumes or performance were to vary significantly from our estimates, we may be exposed to gains or losses that could be material.

Derivative Liability

Our Convertible Notes contain conversion features that meet the definition of an embedded derivative that requires bifurcation from the Convertible Notes and measurement at fair value. The derivative liability is initially measured at fair value on issuance and is subject to remeasurement at each reporting period with changes in fair value recognized in change in fair value of derivative liability in the statements of operations and comprehensive loss.

We determine the fair value of our derivative liability related to Convertible Notes using a “with-and-without” methodology. This involves valuing the instrument with and without the embedded derivative, with the difference representing the derivative liability’s fair value at issuance. Key assumptions include the estimated fair value of the underlying preferred stock, the probability and timing of conversion events, dividend yields, volatility, discount rate, risk-free rate and remaining expected life. Changes in these inputs can materially impact the fair value and reported financial results, including loss and comprehensive loss for the applicable reporting period.

Fair Value of Common Stock

Prior to our initial public offering in February 2026 the fair value of the common stock underlying our stock-based awards was been determined by management with the assistance of third-party valuation specialists using a hybrid approach. Under the hybrid approach, a probability weighting was assigned to both a merger and acquisition (“M&A”) scenario and an initial public offering scenario. For the M&A scenario, management uses the Income Approach and Guideline Public Company (“GPC”) approach to determine the estimated fair value of equity, which was then allocated to the various classes of equity using the Option Pricing Method (“OPM”). Under the OPM, the shares were valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the common stock, preferred stock and preferred stock warrants are then inferred by analyzing these options. For the initial public offering scenario, we estimated the exit value upon an initial public offering and then performed a waterfall analysis to systematically allocate the equity value across share classes according to their fully diluted ownership positions.

For the income approach, we use a discounted cash flow analysis and the significant assumptions used in determining the estimated fair value of our common stock under the income approach primarily relate to the selection of the revenue growth rate, the forecasted EBITDA margin, and the selected discount rate used to discount the future cash flows. Under the GPC approach, the selection of revenue and EBITDA multiples requires significant judgment. Under the initial public offering scenario there is significant judgment used in determining the exit value upon the completion of a successful initial public offering. There is also significant judgment in weighting the probability of the M&A scenario versus the initial public offering scenario.

Subsequent to the completion of our IPO in February 2026, our Board of Directors determines the fair value of our common stock based on the closing price of our common stock as reported on the date of grant on the primary stock exchange on which our common stock is listed.

Stock-Based Compensation

We recognize stock-based compensation expenses related to equity classified awards based on the grant-date fair value of the awards. For awards that vest based only on continued service, we recognize stock-based compensation cost on a straight-line basis over the requisite service period, which is generally the vesting period of the awards. For stock options with performance vesting conditions, we recognize stock-based compensation using an accelerated attribution method when it is probable the performance condition will be achieved. The grant date fair value of stock options that contain service or performance conditions is estimated using the Black-Scholes option-pricing model. The grant date fair value of restricted stock awards that contain service vesting conditions is estimated based on the fair value of the underlying shares on grant date.

The fair value of liability classified awards such as stock appreciation rights awards, is determined using the Black-Scholes option-pricing model on the date of grant and is remeasured each reporting period through the date of settlement. Our liability classified stock appreciation rights are subject to both service and performance conditions. The performance condition, which includes either an initial public offering or a change in control event, is not considered achievable for accounting purposes until it happens. As a result, we will not recognize any compensation for these awards until it is probable that the performance condition will be met.

Determining the fair value of stock-based awards requires judgment. The Black-Scholes option-pricing model is used to estimate the fair value of stock options that have service and/or performance vesting conditions. The assumptions used in these option-pricing models require the input of subjective assumptions and are as follows:

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Fair value—Please refer to the section titled “Fair value of Common Stock” above for the valuation methodology of our common stock.

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Expected volatility—Expected volatility is based on historical volatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected term of the awards.

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Expected term—For stock options with only service vesting conditions, the expected term is determined using the simplified method, which estimates the expected term using the contractual life of the option and the vesting period.

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Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury yield of treasury bonds with a maturity that approximates the expected term of the awards.

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Expected dividend yield—The dividend yield is based on our current expectations of dividend payouts. We currently have no history or expectation of paying cash dividends on our common stock.

The determination of stock-based compensation cost is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If factors change and different assumptions are used, stock-based compensation expense and net losses could be significantly different.

We will continue to use judgment in evaluating the expected volatility and expected terms utilized in our stock-based compensation expense calculations on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates, which could materially impact our future stock-based compensation. See Note 11 to our unaudited condensed consolidated financial statements in Part I, Item 1. in this Quarterly Report on Form 10-Q for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the three months ended March 31, 2026 and 2025.

During the three months ended March 31, 2026, we recorded $6.5 million in stock-based compensation. There was an insignificant reduction in net sales associated with stock appreciation rights issued to a customer and no reduction in net sales associated with warrants issued to a customer during the three months ended March 31, 2026.

During the three months ended March 31, 2025, we recorded $0.8 million in stock-based compensation and no reduction in net sales associated with warrants issued to customers as no warrants to customers were issued during that period.

As of March 31, 2026, there was $12.1 million in unrecognized compensation related to unvested service-based vesting options which is expected to be recognized over a weighted-average period of 3.2 years.

As of March 31, 2026, there was $10.1 million in unrecognized compensation related to unvested RSUs which is expected to be recognized over a weighted-average period of 2.6 years.