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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q and the section titled "Risk Factors" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . OverviewLaird Superfood is an emerging consumer products platform focused on manufacturing and marketing highly differentiated plant-based and functional foods. The core pillars of theLaird Superfood platform are currentlySuperfood Creamer coffee creamers, Hydrate hydration products and beverage enhancing supplements, harvest snacks and other food items, and roasted and instant coffees, teas and hot chocolate. Consumer preferences within the evolving food and beverage industry are shifting away from processed and sugar-laden food and beverage products, as well as those containing significant amounts of highly processed and artificial ingredients.Laird Superfood's long-term goal is to build the first scale-level and widely recognized brand that authentically focuses on natural ingredients, nutritional density and functionality, allowing the Company to maximize penetration of a multi-billion-dollar opportunity in the grocery market. We have experienced strong sales growth since inception. Net sales increased to$9.2 million for the three months endedJune 30, 2021 , from$5.6 million for the three months endedJune 30, 2020 , representing net sales growth of 64%. Likewise, net sales increased to$16.6 million for the six months endedJune 30, 2021 , from$11.1 million for the six months endedJune 30, 2020 , representing net sales growth of 50%. The growth in the three and six months endedJune 30, 2021 was primarily driven by a significant expansion of our customer base in online channels and numerous new product offerings. Our omnichannel distribution strategy has three key components: online, wholesale and food service. In aggregate, this omnichannel strategy provides us with a diverse set of customers and wholesale partners, along with an opportunity to develop a direct relationship with our customers at lairdsuperfood.com . 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 . For the three months endedJune 30, 2021 and 2020, the online business made up 63% and 66% of our net sales, respectively. For the six months endedJune 30, 2021 and 2020, the online business made up 61% and 59% of our net sales, respectively. Lairdsuperfood.com is a platform that provides an authentic brand experience for our customers that drives engagement and provides feedback for future product development, 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 allowsLaird 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 over two-thirds of lairdsuperfood.com sales for three and six months endedJune 30, 2021 . Our wholesale business addresses the$759 billion grocery industry, specifically the$174 billion Natural,Organic and Functional Foods and Beverages sub-segment, which has been increasing its proportion of the grocery industry, as well as many non-grocery retail channels. For the three months endedJune 30, 2021 and 2020, wholesale revenue comprised 35% and 33% of our net sales, respectively. For the six months endedJune 30, 2021 and 2020, wholesale revenue comprised 37% and 41% 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. The diversity of our retail channel represents a strong competitive advantage forLaird 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. 32 -------------------------------------------------------------------------------- Table of Contents Recent Developments Capital Contribution OnDecember 3, 2020 , the Company entered into an agreement with DMV for an additional capital contribution as a participant in the DMV COVID-19Relief Fund . The agreement provided the Company with cash consideration of$298,103 for the purpose of supporting three relief projects: (1) continual sanitation rotation, (2) spend on increased labor, material and maintenance costs in the face of adversity, and (3) new/existing hospitals relief initiative. The Company has included the balance in cash and cash equivalents on the Balance Sheet as ofJune 30, 2021 . See Note 1 for more information. Two-for-One Stock Split Our board of directors and stockholders approved a two-for-one split of our common stock, which was effected onAugust 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 Quarterly Report 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. Workforce Housing OnApril 20, 2021 , the Audit Committee of the Company's board of directors consented toMr. Hodge , CEO, pledging up to 150,000 of his shares of the Company's common stock as collateral to a line of credit in support ofMr. Hodge individually developing workforce housing inSisters, Oregon , where the Company is headquartered. Picky Bars Acquisition OnMay 3, 2021 , the Company acquiredPicky Bars, LLC ("Picky Bars"), an innovator in the healthy snack industry focused on nutritionally balanced, real-food products, for a cash-free, debtfree purchase price of$11.1 million , subject to customary working capital adjustments, and 53,133 shares of Company common stock, subject to certain vesting conditions. 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 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. 33 -------------------------------------------------------------------------------- Table of Contents 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 outsidethe United States . We may encounter difficulties in sourcing products. As an example, one of our suppliers entered voluntary receivership inJune 2021 , and we may be unable to find a suitable replacement supplier on substantially similar terms or at all. Ability to Optimize Key Components of Working Capital Our ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by our ability to effectively manage all the key working capital components that could influence our cash conversion cycle. Components of Results of Operations Sales, net We sell our products indirectly to consumers through a broad set of physical wholesale channels. We also derive revenue from the sale of our products directly to consumers through our direct 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. 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 theSEC and higher expenses for insurance, investor relations and professional services. We expect our general and administrative expenses will increase as our business grows. 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. Results of Operations Comparison of the three months ended June 30, 2021 ("Q2 2021") and June 30, 2020 ("Q2 2020") The following table summarizes our results of operations for the periods indicated: For the Three Months Ended June 30, Change 2021 2020 $ % Sales, net$ 9,195,786 $ 5,608,830 $ 3,586,956 64 % Cost of goods sold (6,998,695 ) (4,285,128 ) (2,713,567 ) 63 % Gross profit 2,197,091 1,323,702 873,389 66 % Gross Margin 23.9 % 23.6 % General and administrative 4,162,911 1,832,442 2,330,469 127 % Research and product development 374,852 117,797 257,055 218 % Sales and marketing 3,936,492 2,395,701 1,540,791 64 % Total expenses 8,474,255 4,345,940 4,128,315 95 % Operating loss (6,277,164 ) (3,022,238 ) (3,254,926 ) 108 % Other income (expense) 11,623 15,848 (4,225 ) (27 %) Loss before income taxes (6,265,541 ) (3,006,390 ) (3,259,151 ) 108 % Income tax expense (36,718 ) - (36,718 ) 0 % Net loss$ (6,302,259) $ (3,006,390 ) $ (3,295,869 ) 110 % 34
-------------------------------------------------------------------------------- Table of Contents Sales, Net For the Three Months Ended June 30, Change 2021 2020 $ % Sales, net$ 9,195,786 $ 5,608,830 $ 3,586,956 64 % Net sales increased by$3.6 million to$9.2 million in Q2 2021, compared to$5.6 million in Q2 2020. This increase was due primarily to the acquisition of Picky Bars, and growth in our direct online sales channel. Products introduced after Q2 2020 including OatMac Superfood Creamers, Chai Instafuel, Activate Daily Greens, Renew Rest & Recover, Functional Coffees, Pili Nuts, Renew Protein, and Turmeric Liquid Creamer, accounted for$1.3 million of gross sales in Q2 2021. Cost of Goods Sold For the Three Months Ended June 30, Change 2021 2020 $ % Cost of goods sold$ (6,998,695) $ (4,285,128 ) $ (2,713,567 ) 63 % Cost of goods sold increased by$2.7 million in Q2 2021 to$7.0 million from$4.3 million in Q2 2020, primarily due to sales growth in the 2021 period, elevated outbound shipping costs, increased personnel costs, and increased co-packing costs primarily associated with our liquid creamer product line. Gross Profit For the Three Months Ended June 30, Change 2021 2020 $ % Gross profit$ 2,197,091 $ 1,323,702 $ 873,389 66 % Gross profit increased by$0.9 million in Q2 2021 to$2.2 million from$1.3 million in Q2 2020, primarily due to sales growth in the 2021 period. Gross margins increased slightly to 23.9% in Q2 2021 from 23.6% in Q2 2020, primarily due to optimization of direct to consumer shipping costs and improvements in liquid creamer distribution and disposals. Operating Expenses For the Three Months Ended June 30, Change 2021 2020 $ % Operating expenses General and administrative$ 4,162,911 $ 1,832,442 $ 2,330,469 127 % Research and product development 374,852 117,797 257,055 218 % Sales and marketing 3,936,492 2,395,701 1,540,791 64 % Total operating expenses 8,474,255 4,345,940$ 4,128,315 95 % General and administrative expense increased by$2.3 million in Q2 2021 to$4.1 million from$1.8 million in Q2 2020, primarily due to stock-based compensation, personnel costs, reserve against prepaid assets, insurance expense, and professional fees. Research and product development expense increased by$0.3 million to$0.4 million in Q2 2021 from$0.1 million in Q2 2020, primarily due to costs to bring new products to market. Sales and marketing expense increased by$1.5 million in Q2 2021 to$3.9 million from$2.4 million in Q2 2020, primarily due to advertising expense and marketing fees. 35 --------------------------------------------------------------------------------
Table of Contents Other Income (Expense) For the Three Months Ended June 30, Change 2021 2020 $ % Other income (expense)$ 11,623 $ 15,848 $ (4,225 ) (27 %) Other income (expense) is composed of interest income and dividend income related to investment securities available-for-sale as well as other non-operating costs. Other income (expense) decreased$4 thousand in Q2 2021 to$12 thousand of income from$16 thousand of income in Q2 2020, primarily due to realized gains on the sale of available for sale securities in Q2 2020. Comparison of the six months endedJune 30, 2021 ("YTD 2021") andJune 30, 2020 ("YTD 2020") The following table summarizes our results of operations for the periods indicated: For the Six Months Ended June 30, Change 2021 2020 $ % Sales, net$ 16,622,039 $ 11,092,055 $ 5,529,984 50 % Cost of goods sold (12,558,194 ) (7,650,736 ) (4,907,458 ) 64 % Gross profit 4,063,845 3,441,319 622,526 18 % Gross Margin 24.4 % 31.0 % General and administrative 7,803,980 3,432,012 4,371,968 127 % Research and product development 615,539 261,111 354,428 136 % Sales and marketing 7,263,571 4,788,518 2,475,053 52 % Total expenses 15,683,090 8,481,641 7,201,449 85 % Operating loss (11,619,245 ) (5,040,322 ) (6,578,923 ) 131 % Other income (expense) 23,200 38,702 (15,502 ) (40 %) Loss before income taxes (11,596,045 ) (5,001,620 ) (6,594,425 ) 132 % Income tax expense (36,718 ) - (36,718 ) 0 % Net loss$ (11,632,763) $ (5,001,620 ) $ (6,631,143 ) 133 % Sales, Net For the Six Months Ended June 30, Change 2021 2020 $ % Sales, net$ 16,622,039 $ 11,092,055 $ 5,529,984 50 % Net sales increased by$5.5 million to$16.6 million in YTD 2021, compared to$11.1 million in YTD 2020. This increase was due to growth in our online and wholesale channels, primarily caused by an increase in sales volume as well as the acquisition of Picky Bars. Products introduced after YTD 2020, including OatMac Superfood Creamers, Chai Instafuel, Activate Daily Greens, Renew Rest & Recover, Functional Coffees, Pili Nuts, Renew Protein, and Turmeric Liquid Creamer, accounted for$2.1 million of gross sales in YTD 2021. Cost of Goods Sold For the Six Months Ended June 30, Change 2021 2020 $ % Cost of goods sold$ (12,558,194) $ (7,650,736 ) $ (4,907,458 ) 64 % Cost of goods sold increased by$4.9 million in YTD 2021 to$12.6 million from$7.7 million in YTD 2020, primarily due to sales growth in the 2021 period, elevated outbound shipping costs, increased personnel costs, and increased co-packing costs primarily associated with our liquid creamer product line. 36 -------------------------------------------------------------------------------- Table of Contents Gross Profit For the Six Months Ended June 30, Change 2021 2020 $ % Gross profit$ 4,063,845 $ 3,441,319 $ 622,526 18 % Gross profit increased by$622 thousand in YTD 2021 to$4.1 million from$3.4 million in YTD 2020. Gross margins decreased to 24.4% in YTD 2021 from 31.0% in YTD 2020 primarily due to elevated outbound shipping costs combined with the launch of a free shipping initiative for direct online purchases made on lairdsuperfood.com , increased personnel costs, disposal costs related to the initial production and distribution of our liquid creamer product line and increased co-packing costs primarily associated with our liquid creamer product line. Operating Expenses For the Six Months Ended June 30, Change 2021 2020 $ % Operating expenses General and administrative$ 7,803,980 $ 3,432,012 $ 4,371,968 127 % Research and product development 615,539 261,111 354,428 136 % Sales and marketing 7,263,571 4,788,518 2,475,053 52 % Total operating expenses 15,683,090 8,481,641$ 7,201,449 85 % General and administrative expense increased by$4.4 million in YTD 2021 to$7.8 million from$3.4 million in YTD 2020, primarily due to stock-based compensation, personnel costs, reserve against prepaid assets, insurance expense, and professional fees. Research and product development expense increased by$0.4 million to$0.6 million in YTD 2021 from$0.3 million in YTD 2020, primarily due to costs to bring new products to market. Sales and marketing expense increased by$2.5 million in YTD 2021 to$7.3 million from$4.8 million in YTD 2020, primarily due to advertising expense and marketing fees. Other Income (Expense) For the Six Months Ended June 30, Change 2021 2020 $ %
Other income (expenses)
Other income is composed of interest income and dividend income related to investment securities available-for-sale as well as other non-operating costs. Other income decreased$16 thousand in YTD 2021 to$23 thousand of income from$39 thousand of income in YTD 2020, primarily the result of decreased realized gains on the sale of available for sale securities in YTD 2021 relative to YTD 2020. 37
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Table of Contents Liquidity and Capital Resources As ofJune 30, 2021 , we had incurred accumulated net losses of$43.6 million , including operating losses of$6.3 million and$3.0 million for Q2 2021 and Q2 2020, respectively, and$11.6 million and$5.0 million for YTD 2021 and YTD 2020, 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, our Initial Public Offering, as well as lines of credit and term loans. Our historical uses of cash have primarily consisted of cash used in operating activities to fund our operating losses and working capital needs. As ofJune 30, 2021 , we had$43.5 million of cash-on-hand and investments and$14.8 million of available borrowings under our lines of credit. As ofDecember 31, 2020 , we had$65.9 million of cash-on-hand and investments and$11.1 million of available borrowings under our lines of credit. As ofJune 30, 2021 , andDecember 31, 2020 , we had$51 thousand outstanding under our forgivable loans with theCity 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 by a third party adjacent to our current buildings which we intend to lease 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 of this report. 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. Cash Flows Comparison of the six months endedJune 30, 2021 andJune 30, 2020 : The following table shows a summary of our cash flows for the periods presented:
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