oROC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission file numbFile Number: er: 001-39119
Leafly Holdings, Inc.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)
Delaware | 84-2266022 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
113 Cherry Street, PMB 88154 Seattle, Washington | 98104-2205 | |||||||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Common Stock, $0.0001 Par Value | LFLY | The Nasdaq Stock Market LLC | ||||||||||||
Warrants, exercisable for shares of common stock at an exercise price of $11.50 per share | LFLYW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yesfiles). ☒Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||||||||||||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
As of November 4, 2022,May 5, 2023, the registrant had 40,035,56841,048,566 shares of common stock, ($0.0001$0.0001 par value) outstanding, netvalue per share, outstanding.
INDEX
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of present or historical fact included in or incorporated by reference in this Quarterly Report regarding Leafly Holdings, Inc.’s (the “Company’s”) future financial performance, as well as the Company’s strategy, future operations, future operating results, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intend,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “may,” “will,” “could,” “should,” “predict,” “potential,” and “continue” or similar words. These forward-looking statements include all matters that are not historical facts. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. You should read statements that contain these words carefully because they:
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report.
All forward-looking statements included herein attributable to the Company or any person acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. These cautionary statements are being made pursuant to federal securities laws with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. Except to the extent required by applicable laws and regulations, the Company undertakes no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events.
There may be events in the future that the Company is not able to predict accurately or over which it has no control. The section in the Company’s Annual Report on Form 10-K for the year ended 20212022 (“2022 Annual Report”) and in this Quarterly Report entitled “Risk Factors,” and the section of this Quarterly Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other cautionary language discussed in this report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by the Company in such forward-looking statements. These examples include:
2
Part I - Financial Information
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
September 30, 2022 | December 31, 2021 | ||||||||||
ASSETS | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 27,829 | $ | 28,565 | |||||||
Accounts receivable, net of allowance for doubtful accounts of $958 and $1,848, respectively | 2,610 | 2,958 | |||||||||
Deferred transaction costs | — | 2,840 | |||||||||
Prepaid expenses and other current assets | 3,569 | 1,347 | |||||||||
Restricted cash | 607 | 130 | |||||||||
Total current assets | 34,615 | 35,840 | |||||||||
Property, equipment, and software, net | 2,213 | 313 | |||||||||
Total assets | $ | 36,828 | $ | 36,153 | |||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 1,375 | $ | 3,048 | |||||||
Accrued expenses and other current liabilities | 5,076 | 8,325 | |||||||||
Deferred revenue | 2,052 | 1,975 | |||||||||
Current portion of convertible promissory notes, net | — | 31,377 | |||||||||
Total current liabilities | 8,503 | 44,725 | |||||||||
Non-current liabilities | |||||||||||
Non-current portion of convertible promissory notes, net | 28,726 | — | |||||||||
Private warrants derivative liability | 662 | — | |||||||||
Escrow shares derivative liability | 47 | — | |||||||||
Stockholder earn-out rights derivative liability | 288 | — | |||||||||
Total non-current liabilities | 29,723 | — | |||||||||
Commitments and contingencies (Note 8) | |||||||||||
Stockholders' deficit | |||||||||||
Preferred stock; $0.0001 par value; 5,000 and 6,578 authorized, — and 6,140 issued and outstanding, and aggregate liquidation preference of $— and $19,436 at September 30, 2022 and December 31, 2021, respectively | — | 1 | |||||||||
Common stock; $0.0001 par value; 200,000 and 69,361 authorized at September 30, 2022 and December 31, 2021, respectively; 43,052 issued at September 30, 2022 and 25,086 shares issued and outstanding at December 31, 2021 | 4 | 3 | |||||||||
Treasury stock, at cost; 3,081,086 and — shares held at at September 30, 2022 and December 31, 2021, respectively | (31,663) | — | |||||||||
Additional paid-in capital | 89,194 | 61,194 | |||||||||
Accumulated deficit | (58,933) | (69,770) | |||||||||
Total stockholders' deficit | (1,398) | (8,572) | |||||||||
Total liabilities and stockholders' deficit | $ | 36,828 | $ | 36,153 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue | $ | 11,781 | $ | 10,896 | $ | 35,251 | $ | 30,959 | |||||||||||||||
Cost of revenue | 1,515 | 1,261 | 4,411 | 3,564 | |||||||||||||||||||
Gross profit | 10,266 | 9,635 | 30,840 | 27,395 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||
Sales and marketing | 6,403 | 4,999 | 21,529 | 13,148 | |||||||||||||||||||
Product development | 3,406 | 3,522 | 10,927 | 9,905 | |||||||||||||||||||
General and administrative | 6,489 | 4,949 | 20,730 | 10,485 | |||||||||||||||||||
Total operating expenses | 16,298 | 13,470 | 53,186 | 33,538 | |||||||||||||||||||
Loss from operations | (6,032) | (3,835) | (22,346) | (6,143) | |||||||||||||||||||
Interest expense, net | (705) | (590) | (2,119) | (698) | |||||||||||||||||||
Change in fair value of derivatives | 22,264 | — | 36,264 | — | |||||||||||||||||||
Other expense, net | (73) | (29) | (962) | (39) | |||||||||||||||||||
Net income (loss) | $ | 15,454 | $ | (4,454) | $ | 10,837 | $ | (6,880) | |||||||||||||||
Net income (loss) per share: | |||||||||||||||||||||||
Basic | $ | 0.43 | $ | (0.18) | $ | 0.31 | $ | (0.28) | |||||||||||||||
Diluted | $ | 0.28 | $ | (0.18) | $ | 0.27 | $ | (0.28) | |||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||||
Basic | 35,580 | 24,923 | 35,260 | 24,832 | |||||||||||||||||||
Diluted | 43,215 | 24,923 | 38,704 | 24,832 |
Three and Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 6,140 | $ | 1 | 25,086 | $ | 3 | — | $ | — | $ | 61,194 | $ | (69,770) | $ | (8,572) | ||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (19,376) | (19,376) | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 1,924 | — | 1,924 | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | 114 | — | — | — | 127 | — | 127 | ||||||||||||||||||||||||||||||||||||||||||||
Conversion of 2021 Notes into Common Stock at Merger | — | — | 4,128 | — | — | — | 33,024 | — | 33,024 | ||||||||||||||||||||||||||||||||||||||||||||
Conversion of Preferred Stock into Common Stock at Merger | (6,140) | (1) | 6,140 | 1 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Merger and recapitalization, net of fees | — | — | 2,007 | — | — | — | 27,997 | — | 27,997 | ||||||||||||||||||||||||||||||||||||||||||||
Stockholder contribution for debt issuance costs | — | — | — | — | — | — | 924 | — | 924 | ||||||||||||||||||||||||||||||||||||||||||||
Escrow shares derivative liability | — | — | 1,625 | — | — | — | (6,867) | — | (6,867) | ||||||||||||||||||||||||||||||||||||||||||||
Private warrants derivative liability | — | — | — | — | — | — | (3,916) | — | (3,916) | ||||||||||||||||||||||||||||||||||||||||||||
Forward share purchase agreement derivative liability | — | — | 3,861 | — | — | — | (14,170) | — | (14,170) | ||||||||||||||||||||||||||||||||||||||||||||
Stockholder earnout rights derivative liability | — | — | — | — | — | — | (26,131) | — | (26,131) | ||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | — | $ | — | 42,961 | $ | 4 | — | $ | — | $ | 74,106 | $ | (89,146) | $ | (15,036) | ||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 14,759 | 14,759 | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 464 | — | 464 | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | 29 | — | — | — | 30 | — | 30 | ||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | — | $ | — | 42,990 | $ | 4 | — | $ | — | $ | 74,600 | $ | (74,387) | $ | 217 | ||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 15,454 | 15,454 | ||||||||||||||||||||||||||||||||||||||||||||
Shares canceled | — | — | (25) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 771 | — | 771 | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | 1 | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock units | — | — | 86 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Settlement of forward share purchase agreement derivative liability | — | — | — | — | — | — | (17,841) | — | (17,841) | ||||||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock | — | — | — | — | (3,081) | (31,663) | 31,663 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | — | $ | — | 43,052 | $ | 4 | (3,081) | $ | (31,663) | $ | 89,194 | $ | (58,933) | $ | (1,398) |
Three and Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
Series A Preferred Stock | Class 1, Class 2, and Class 3 Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 6,140 | $ | 1 | 24,752 | $ | 2 | $ | 59,812 | $ | (57,746) | $ | 2,069 | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (1,109) | (1,109) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 181 | — | 181 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | 36 | — | 40 | — | 40 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 6,140 | 1 | 24,788 | 2 | 60,033 | (58,855) | 1,181 | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (1,317) | (1,317) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 340 | — | 340 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | 49 | — | 68 | — | 68 | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 6,140 | 1 | 24,837 | 2 | 60,441 | (60,172) | 272 | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (4,454) | (4,454) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 208 | — | 208 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | 142 | — | 142 | — | 142 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 6,140 | $ | 1 | 24,979 | $ | 2 | $ | 60,791 | $ | (64,626) | $ | (3,832) |
Nine Months Ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Cash flows from operating activities | |||||||||||
Net income (loss) | $ | 10,837 | $ | (6,880) | |||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||
Depreciation and amortization | 276 | 195 | |||||||||
Stock-based compensation expense | 3,159 | 729 | |||||||||
Bad debt expense | 1,023 | 841 | |||||||||
Noncash lease costs | — | 230 | |||||||||
Noncash amortization of debt discount | 369 | — | |||||||||
Noncash interest expense associated with convertible debt | 243 | 710 | |||||||||
Noncash change in fair value of derivatives | (36,264) | — | |||||||||
Other | 15 | 44 | |||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | (675) | (674) | |||||||||
Prepaid expenses and other current assets | (2,222) | (600) | |||||||||
Accounts payable | 173 | (3) | |||||||||
Accrued expenses and other current liabilities | (2,141) | 1,713 | |||||||||
Deferred revenue | 77 | 594 | |||||||||
Net cash used in operating activities | (25,130) | (3,101) | |||||||||
Cash flows from investing activities | |||||||||||
Additions of property, equipment, and software | (2,194) | (38) | |||||||||
Net cash used in investing activities | (2,194) | (38) | |||||||||
Cash flows from financing activities | |||||||||||
Proceeds from exercise of stock options | 158 | 223 | |||||||||
Proceeds from convertible promissory notes | 29,374 | 31,470 | |||||||||
Proceeds from business combination placed in escrow and restricted | 39,032 | — | |||||||||
Trust proceeds received from recapitalization at closing | 582 | — | |||||||||
Repurchase of common stock and settlement of forward purchase agreements | (31,303) | — | |||||||||
Transaction costs associated with recapitalization | (10,761) | — | |||||||||
Payments on related party payables | (17) | (242) | |||||||||
Net cash provided by financing activities | 27,065 | 31,451 | |||||||||
Net (decrease) increase in cash, cash equivalents, and restricted cash | (259) | 28,312 | |||||||||
Cash, cash equivalents, and restricted cash, beginning of period | 28,695 | 4,934 | |||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 28,436 | $ | 33,246 | |||||||
Supplemental disclosure of non-cash financing activities | |||||||||||
Stockholder contribution for debt issuance costs | $ | 924 | $ | — | |||||||
Repurchase of common stock in other accrued expenses | $ | 360 | $ | — | |||||||
Conversion of promissory notes into common stock | $ | 33,024 | $ | — | |||||||
Issuance of forward share purchase agreements | $ | 14,170 | $ | — | |||||||
Issuance of private warrants | $ | 3,916 | $ | — | |||||||
Issuance of sponsor shares subject to earnout conditions | $ | 6,867 | $ | — | |||||||
Issuance of stockholder earn-out rights | $ | 26,131 | $ | — |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents | $ | 14,955 |
|
| $ | 24,594 |
|
Accounts receivable, net of allowance for doubtful accounts of $1,091 and $908, respectively |
| 3,638 |
|
|
| 3,298 |
|
Prepaid expenses and other current assets |
| 4,287 |
|
|
| 1,792 |
|
Restricted cash |
| 360 |
|
|
| 360 |
|
Total current assets |
| 23,240 |
|
|
| 30,044 |
|
Property, equipment, and software, net |
| 2,622 |
|
|
| 2,285 |
|
Restricted cash - long-term portion |
| 248 |
|
|
| 248 |
|
Other assets |
| 100 |
|
|
| 135 |
|
Total assets | $ | 26,210 |
|
| $ | 32,712 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable | $ | 1,224 |
|
| $ | 1,625 |
|
Accrued expenses and other current liabilities |
| 4,662 |
|
|
| 6,235 |
|
Deferred revenue |
| 2,180 |
|
|
| 1,958 |
|
Total current liabilities |
| 8,066 |
|
|
| 9,818 |
|
|
|
|
|
|
| ||
Non-current liabilities |
|
|
|
|
| ||
Non-current portion of convertible promissory notes, net |
| 28,999 |
|
|
| 28,863 |
|
Private warrants derivative liability |
| 130 |
|
|
| 182 |
|
Escrow shares derivative liability |
| 7 |
|
|
| 52 |
|
Stockholder earn-out rights derivative liability |
| 34 |
|
|
| 204 |
|
Total non-current liabilities |
| 29,170 |
|
|
| 29,301 |
|
Total liabilities |
| 37,236 |
|
|
| 39,119 |
|
|
|
|
|
|
| ||
Commitments and contingencies (Note 8) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Stockholders' deficit |
|
|
|
|
| ||
Preferred stock: $0.0001 par value; 5,000 and 5,000 authorized; 0 and 0 issued and outstanding; aggregate liquidation preference of $0 and $0 at March 31, 2023 and December 31, 2022, respectively |
| — |
|
|
| — |
|
Common stock: $0.0001 par value; 200,000 and 200,000 authorized; 43,849 and 43,275 issued at March 31, 2023 and December 31, 2022, respectively |
| 4 |
|
|
| 4 |
|
Treasury stock: 3,081 and 3,081 shares held at March 31, 2023 and December 31, 2022, respectively |
| (31,663 | ) |
|
| (31,663 | ) |
Additional paid-in capital |
| 90,730 |
|
|
| 89,952 |
|
Accumulated deficit |
| (70,097 | ) |
|
| (64,700 | ) |
Total stockholders' deficit |
| (11,026 | ) |
|
| (6,407 | ) |
Total liabilities and stockholders' deficit | $ | 26,210 |
|
| $ | 32,712 |
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
LEAFLY HOLDINGS, INC
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(in thousands, except per share amounts)
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Revenue |
| $ | 11,249 |
|
| $ | 11,420 |
|
Cost of revenue |
|
| 1,346 |
|
|
| 1,455 |
|
Gross profit |
|
| 9,903 |
|
|
| 9,965 |
|
Operating expenses |
|
|
|
|
|
| ||
Sales and marketing |
|
| 4,911 |
|
|
| 7,014 |
|
Product development |
|
| 3,280 |
|
|
| 3,465 |
|
General and administrative |
|
| 6,660 |
|
|
| 6,931 |
|
Total operating expenses |
|
| 14,851 |
|
|
| 17,410 |
|
Loss from operations |
|
| (4,948 | ) |
|
| (7,445 | ) |
Interest expense, net |
|
| (713 | ) |
|
| (697 | ) |
Change in fair value of derivatives |
|
| 267 |
|
|
| (10,397 | ) |
Other expense, net |
|
| (3 | ) |
|
| (837 | ) |
Net loss |
| $ | (5,397 | ) |
| $ | (19,376 | ) |
|
|
|
|
|
|
| ||
Net loss per share: |
|
|
|
|
|
| ||
Basic |
| $ | (0.14 | ) |
| $ | (0.52 | ) |
Diluted |
| $ | (0.14 | ) |
| $ | (0.52 | ) |
|
|
|
|
|
|
| ||
Weighted average shares outstanding: |
|
|
|
|
|
| ||
Basic |
|
| 38,705 |
|
|
| 37,525 |
|
Diluted |
|
| 38,705 |
|
|
| 37,525 |
|
See Notes to Condensed Consolidated Financial Statements.
4
LEAFLY HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(in thousands)
| Three Months Ended March 31, 2023 |
| |||||||||||||||||||||||||||||||||
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Deficit |
|
| Total |
| ||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2023 |
| — |
|
| $ | — |
|
|
| 43,275 |
|
| $ | 4 |
|
|
| (3,081 | ) |
| $ | (31,663 | ) |
| $ | 89,952 |
|
| $ | (64,700 | ) |
| $ | (6,407 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,397 | ) |
|
| (5,397 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 658 |
|
|
| — |
|
|
| 658 |
|
Issuance of common stock under ESPP |
| — |
|
|
| — |
|
|
| 289 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120 |
|
|
| — |
|
|
| 120 |
|
Issuance of common stock upon |
| — |
|
|
| — |
|
|
| 285 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Balance at March 31, 2023 |
| — |
|
| $ | — |
|
|
| 43,849 |
|
| $ | 4 |
|
|
| (3,081 | ) |
| $ | (31,663 | ) |
| $ | 90,730 |
|
| $ | (70,097 | ) |
| $ | (11,026 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
LEAFLY HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (Continued)
(in thousands)
| Three Months Ended March 31, 2022 |
| |||||||||||||||||||||||||||||||||
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Deficit |
|
| Total |
| ||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2022 |
| 6,140 |
|
| $ | 1 |
|
|
| 25,086 |
|
| $ | 3 |
|
|
| — |
|
| $ | — |
|
| $ | 61,194 |
|
| $ | (69,770 | ) |
| $ | (8,572 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,376 | ) |
|
| (19,376 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,924 |
|
|
| — |
|
|
| 1,924 |
|
Exercise of stock options |
| — |
|
|
| — |
|
|
| 114 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 127 |
|
|
| — |
|
|
| 127 |
|
Conversion of 2021 Notes into common stock upon Business Combination |
| — |
|
|
| — |
|
|
| 4,128 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33,024 |
|
|
| — |
|
|
| 33,024 |
|
Conversion of preferred stock into common stock upon Business Combination |
| (6,140 | ) |
|
| (1 | ) |
|
| 6,140 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Merger and recapitalization, net of fees |
| — |
|
|
| — |
|
|
| 2,007 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,997 |
|
|
| — |
|
|
| 27,997 |
|
Stockholder contribution for debt issuance costs |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 924 |
|
|
| — |
|
|
| 924 |
|
Escrow shares derivative liability |
| — |
|
|
| — |
|
|
| 1,625 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,867 | ) |
|
| — |
|
|
| (6,867 | ) |
Private warrants derivative liability |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,916 | ) |
|
| — |
|
|
| (3,916 | ) |
Forward share purchase agreement derivative liability |
| — |
|
|
| — |
|
|
| 3,861 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,170 | ) |
|
| — |
|
|
| (14,170 | ) |
Stockholder earnout rights derivative liability |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,131 | ) |
|
| — |
|
|
| (26,131 | ) |
Balance at March 31, 2022 |
| — |
|
| $ | — |
|
|
| 42,961 |
|
| $ | 4 |
|
|
| — |
|
| $ | — |
|
| $ | 74,106 |
|
| $ | (89,146 | ) |
| $ | (15,036 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
6
LEAFLY HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Three Months Ended March 31, |
| |||||
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net loss | $ | (5,397 | ) |
| $ | (19,376 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 195 |
|
|
| 52 |
|
Stock-based compensation expense |
| 658 |
|
|
| 1,924 |
|
Bad debt expense, net of recoveries |
| 725 |
|
|
| (124 | ) |
Loss on disposition of assets |
| 10 |
|
|
| — |
|
Noncash amortization of debt discount |
| 136 |
|
|
| 104 |
|
Noncash interest expense associated with convertible debt |
| — |
|
|
| 243 |
|
Noncash change in fair value of derivatives |
| (267 | ) |
|
| 10,397 |
|
Other |
| (7 | ) |
|
| 12 |
|
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (1,065 | ) |
|
| (198 | ) |
Prepaid expenses and other current assets |
| (2,460 | ) |
|
| (5,970 | ) |
Accounts payable |
| (401 | ) |
|
| 1,309 |
|
Accrued expenses and other current liabilities |
| (1,565 | ) |
|
| (2,969 | ) |
Deferred revenue |
| 222 |
|
|
| 591 |
|
Net cash used in operating activities |
| (9,216 | ) |
|
| (14,005 | ) |
|
|
|
|
|
| ||
Cash flows from investing activities |
|
|
|
|
| ||
Additions of property, equipment, and software |
| (535 | ) |
|
| (788 | ) |
Net cash used in investing activities |
| (535 | ) |
|
| (788 | ) |
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
|
|
| ||
Proceeds from exercise of stock options |
| — |
|
|
| 127 |
|
Proceeds from convertible promissory notes |
| — |
|
|
| 29,374 |
|
Proceeds from business combination placed in escrow and restricted |
| — |
|
|
| 39,032 |
|
Trust proceeds received from recapitalization at closing |
| — |
|
|
| 582 |
|
Issuance of common stock under ESPP |
| 120 |
|
|
| — |
|
Transaction costs associated with recapitalization |
| — |
|
|
| (10,397 | ) |
Payments on related party payables |
| (8 | ) |
|
| (7 | ) |
Net cash provided by financing activities |
| 112 |
|
|
| 58,711 |
|
|
|
|
|
|
| ||
Net (decrease) increase in cash, cash equivalents, and restricted cash |
| (9,639 | ) |
|
| 43,918 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
| 25,202 |
|
|
| 28,695 |
|
Cash, cash equivalents, and restricted cash, end of period | $ | 15,563 |
|
| $ | 72,613 |
|
|
|
|
|
|
|
| Three Months Ended March 31, |
| |||||
| 2023 |
|
| 2022 |
| ||
Supplemental disclosure of non-cash financing activities: |
|
|
|
|
| ||
Stockholder contribution for debt issuance costs | $ | — |
|
| $ | 924 |
|
Conversion of promissory notes into common stock |
| — |
|
|
| 33,024 |
|
Issuance of forward share purchase agreements |
| — |
|
|
| 14,170 |
|
Issuance of private warrants |
| — |
|
|
| 3,916 |
|
Issuance of sponsor shares subject to earn-out conditions |
| — |
|
|
| 6,867 |
|
Issuance of stockholder earn-out rights |
| — |
|
|
| 26,131 |
|
See Notes to Condensed Consolidated Financial Statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1 — Description of the Business and Merger Transaction
Description of the Business
Leafly Holdings, Inc. (“Leafly” or “the Company”) is a leading online cannabis discovery marketplace and resource for cannabis consumers. Leafly provides an information resource platform with a deep library of content, including detailed information about cannabis strains, retailers and current events. Leafly was incorporated in the state of Delaware on June 20, 2019 and is headquartered in Seattle, Washington.
The Company has twothree wholly-owned subsidiaries, Leafly Canada Ltd. (“, Leafly Canada”)Deutschland GmbH and Leafly, LLC (“Legacy Leafly”). Legacy Leafly is the accounting predecessor of Leafly. The accompanying condensed consolidated financial statements include the financial results of the Company and its wholly-owned subsidiaries.
On February 4, 2022, Leafly consummated the previously announced Mergersmergers and related transactions (collectively, the “Merger”) pursuant to the Agreement and Plan of Merger dated August 9, 2021 and amended on September 8, 2021 and on January 11, 2022 (as amended, the “Merger Agreement”). Legacy Leafly (formerly known as Leafly Holdings, Inc.) entered into the Merger Agreement with Merida Merger Corp. I (“Merida”), Merida Merger Sub, Inc., a Washington corporation (“Merger Sub I”), and Merida Merger Sub II, LLC, a Washington limited liability company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”). Merger Sub I merged with and into Legacy Leafly, with Legacy Leafly surviving as a wholly-owned subsidiary of Merida, and following the initial Merger and as part of a single integrated transaction with the initial Merger, Legacy Leafly merged with and into Merger Sub II, with Merger Sub II surviving as a wholly-owned subsidiary of Merida. As a result of these Mergers, Legacy Leafly became a wholly owned subsidiary of Merida and was renamed Leafly, LLC, Merida was renamed Leafly Holdings, Inc. (“New Leafly”), and the securityholders of Legacy Leafly became security holders of Merida.New Leafly. We sometimes refer to the Mergers described above and the other transactions contemplated by the Merger Agreement and the other agreements being entered into by Merida and Legacy Leafly in connection with the Mergers as the “Business Combination” and to Merida following the Business Combination as “New Leafly.”
While the legal acquirer in the Business Combination is Merida, for financial accounting and reporting purposes under U.S. GAAP,accounting principles generally accepted in the United States of America (“GAAP”), Legacy Leafly is the accounting acquirer with the Merger accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of the financial statements of Legacy Leafly. Under this accounting method, Merida is treated as the “acquired” company and Legacy Leafly is the accounting acquirer, with the transaction treated as a recapitalization of Legacy Leafly. Merida’s assets, liabilities and results of operations were consolidated with Legacy Leafly’s beginning on the date of the Business Combination. Except for certain derivative liabilities, the assets and liabilities of Merida were recognized at historical cost (which is consistent with carrying value) and were not material, with no goodwill or other intangible assets recorded. The derivative liabilities, which are discussed in Notes 1213 and 13,18, were recorded at fair value. The consolidated assets, liabilities, and results of operations of Legacy Leafly became the historical financial statements, and operations prior to the closing of the Business Combination presented for comparative purposes are those of Legacy Leafly. Pre-Merger shares of common stock and preferred stock were converted to shares of common stock of the combined company using the conversion ratio of 0.3283 and for comparative purposes, the shares and net loss per share of Legacy Leafly, prior to the Merger, have been retroactively restated using the conversion ratio.
8
Basis of Presentation
The interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and should be read in conjunction with the Company's audited consolidated financial statements for the years ended December 31, 20212022 and 2020,2021, and Management’s Discussion and Analysis of Financial Condition and Results of Operations of Leafly for the year ended December 31, 2021,2022, each of which was filed on the company’s Amendment No. 1 on Form 8-K/A filed with the SEC on March 31, 202229, 2023 (the “2021“2022 Financial Information”).
These condensed consolidated financial statements are unaudited and, in management's opinion, include all adjustments, consisting of normal recurring estimates and accruals necessary for a fair presentation of our consolidated cash flows, operating results, and balance sheets for the periods presented. Actual results may differ from these estimates and assumptions. The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC for interim reporting. All intercompany balances and transactions have been eliminated upon consolidation.
Going Concern Evaluation
Under the rules of ASC Subtopic 205-40 “Presentation of Financial Statements-Going Concern” (“ASC 205-40”), reporting companies are required to evaluate whether conditions and/or events raise substantial doubt about their ability to meet their future financial obligations as they become due within one year after the date that the financial statements are issued. This evaluation takes into account a company’s current available cash and projected cash needs over the one-year evaluation period but may not consider things beyond its control. Leafly has experienced revenue declines, incurred recurring operating losses, used cash from operations, and relied on the capital raised in the business Combination to continue ongoing operations. These conditions, when considered in the aggregate, raise substantial doubt about Leafly’s ability to continue as a going concern within one year of the date these financial statements are issued. In response to these conditions, Leafly management took the following actions:
After considering all available evidence, Leafly’s management determined that, based on the cost reduction measures outlined in both actions above, Leafly’s current positive working capital will be sufficient to meet its capital requirements for a period of at least 12 months from the date that these March 31, 2023 financial statements are issued.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reportereported net loss.d net income (loss).
Seasonality
We may experience seasonality in our business, which we believe has moderate impacts on our overall revenue. In certain years, we've seen seasonal fluctuations that coincide with either federal holidays, generally in the fourth quarter, or industry holidays and events, generally in the spring. Our industry and business history is limited and therefore we can't be certain that these are known trends or that other trends may develop.
9
Leafly is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued until such time as those standards apply to private companies. The Company has elected to use this extended transition period. In providing this relief, the JOBS Act does not preclude the Company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. Leafly will continue to use this relief until the earlier of the date that it (a) is no longer an emerging growth companyEGC or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates. Such estimates include those related to the fair value of derivative liabilities; the allowance for doubtful accounts; the valuation allowance for deferred income tax assets; the fair value of the convertible promissory notes; the estimate of capitalized software costs and useful life of capitalized software; and the fair value of equity issuances. Management bases its estimates on historical experience, knowledge of current events and actions it may undertake in the future that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.
Significant Accounting Policies
The unaudited interim financial statements should be read in conjunction with the Company's 20212022 Financial Information, which describes the Company's significant accounting policies. There have been no material changes to the Company's significant accounting policies during the three and nine months ended September 30, 2022March 31, 2023 compared to our Annual Report on Form 10-K for the year ended December 31, 2021. However, certain items became material during the periods presented and therefore, we have disclosed the related accounting policies below. In addition, as a result of the Business Combination, the Company entered into certain derivative instruments that are accounted for as liabilities. These instruments and the related accounting are discussed in Notes 12, 13, and 20.2022.
Management does not believe that there are any recently issued, but not yet effective, accounting standards that, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements or related disclosures.
| March 31, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents | $ | 14,955 |
|
| $ | 24,594 |
|
Restricted cash |
| 360 |
|
|
| 360 |
|
Restricted cash - long-term portion |
| 248 |
|
|
| 248 |
|
$ | 15,563 |
|
| $ | 25,202 |
| |
|
|
|
|
|
|
September 30, 2022 | December 31, 2021 | ||||||||||
Cash and cash equivalents | $ | 27,829 | $ | 28,565 | |||||||
Restricted cash | 607 | 130 | |||||||||
$ | 28,436 | $ | 28,695 |
The September 30,March 31, 2023 and December 31, 2022 restricted cash balance includes $360balances include $360 of cash maintained in escrow related to Forward Share Purchase Agreements ("FPAs"(“FPAs”). Effective August 1, 2022, the FPA holders elected to have Leafly repurchase their remaining 3,081 shares covered by the FPAs for an aggregate repurchase price of $31,663.$31,663. As a result, the shares repurchased have been removed from Leafly's outstanding shares effective as of the date of purchase and placed into treasury. The FPA holders elected to have all but $360$360 disbursed from the escrow account and are able to claim the remainder any time until August 1, 2023. If unclaimed, the remaining funds in escrow will be distributed to the Company. Additional information regarding the FPAs is included in Notes 13 and 20.18.
10
NOTE 4 — Prepaid Expenses and Other Current Assets
| March 31, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
| ||
Prepaid subscriptions | $ | 880 |
|
| $ | 916 |
|
Prepaid insurance |
| 3,104 |
|
|
| 533 |
|
Other prepaid assets |
| 272 |
|
|
| 272 |
|
Other current assets |
| 31 |
|
|
| 71 |
|
Subtotal, current portion |
| 4,287 |
|
|
| 1,792 |
|
Prepaid expenses, long-term portion |
| 100 |
|
|
| 135 |
|
Total | $ | 4,387 |
|
| $ | 1,927 |
|
|
|
|
|
|
|
September 30, 2022 | December 31, 2021 | ||||||||||
Prepaid insurance | $ | 2,065 | $ | 57 | |||||||
Other prepaid expenses | 1,441 | 1,134 | |||||||||
Other current assets | 63 | 156 | |||||||||
$ | 3,569 | $ | 1,347 |
NOTE 5 — Accounts Receivable, Net
Accounts receivable, net of $3,638 and $3,298 as of March 31, 2023 and December 31, 2022, respectively, consists of amounts due from customers less an allowance for doubtful accounts.
The following table presents the allowance for doubtful accounts and the changes therein:
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
|
| ||
Balance, beginning of period |
|
| $ | 908 |
|
| $ | 1,848 |
|
Add: provision for doubtful accounts, net of recoveries |
|
|
| 725 |
|
|
| (124 | ) |
Less: write-offs |
|
|
| (542 | ) |
|
| (42 | ) |
Balance, end of period |
|
| $ | 1,091 |
|
| $ | 1,682 |
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Balance, beginning of period | $ | 1,469 | $ | 1,142 | $ | 1,848 | $ | 1,131 | |||||||||||||||
Add: provision for doubtful accounts, net of recoveries | 383 | 529 | 1,023 | 841 | |||||||||||||||||||
Less: write-offs | (894) | (93) | (1,913) | (394) | |||||||||||||||||||
Balance, end of period | $ | 958 | $ | 1,578 | $ | 958 | $ | 1,578 |
NOTE 6 — Property, Equipment, and Software, Net
Property, equipment, and software consisted of the following:
| March 31, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
| ||
Furniture and equipment | $ | 707 |
|
| $ | 740 |
|
Capitalized internal-use software |
| 2,843 |
|
|
| 2,310 |
|
| 3,550 |
|
|
| 3,050 |
| |
Less: accumulated depreciation and amortization |
| (928 | ) |
|
| (765 | ) |
$ | 2,622 |
|
| $ | 2,285 |
| |
|
|
|
|
|
|
September 30, 2022 | December 31, 2021 | ||||||||||
Furniture and equipment | $ | 902 | $ | 1,049 | |||||||
Leasehold improvements | — | 2 | |||||||||
Internal-use software | 2,081 | — | |||||||||
2,983 | 1,051 | ||||||||||
Less: accumulated depreciation and amortization | (770) | (738) | |||||||||
$ | 2,213 | $ | 313 |
The Company recognized depreciation and amortization expense as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Depreciation expense |
| $ | 23 |
|
| $ | 52 |
|
Amortization of capitalized internal-use software |
|
| 172 |
|
|
| — |
|
Total depreciation and amortization |
| $ | 195 |
|
| $ | 52 |
|
|
|
|
|
|
|
|
11
a
nd $57 for the three months ended September 30, 2022 and 2021, respectively, and $135 and $195 for the nine months ended September 30, 2022 and 2021, respectively. Amortization of internal-use software was $90 and $0 for the three months ended September 30, 2022 and 2021, respectively, and $141 and $0 for the nine months ended September 30, 2022 and 2021, respectively.
Accrued expenses consist of the following:
September 30, 2022 | December 31, 2021 | ||||||||||
Accrued bonuses | $ | 537 | $ | 3,668 | |||||||
Other employee-related liabilities | 2,547 | 2,131 | |||||||||
Accrued interest | 400 | 1,313 | |||||||||
Other accrued expenses 1 | 1,592 | 1,213 | |||||||||
$ | 5,076 | $ | 8,325 |
| March 31, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
| ||
Accrued bonuses | $ | 466 |
|
| $ | 1,309 |
|
Other employee-related liabilities |
| 2,295 |
|
|
| 2,403 |
|
Accrued interest |
| 400 |
|
|
| 1,000 |
|
Other accrued expenses 1 |
| 1,501 |
|
|
| 1,523 |
|
$ | 4,662 |
|
| $ | 6,235 |
|
NOTE 8 — Commitments and Contingencies
In the normal course of business, the Company may receive inquiries or become involved in legal disputes regarding various litigation matters. In the opinion of management, any potential liabilities resulting from such claims would not have a material adverse effect on the Company’s condensed consolidated financial statements.
Leases
The Company does not have any leases with an original term longer than 12 months as of March 31, 2023. The Company has short-term arrangements with immaterial rental obligations for office space.
Nasdaq Notifications of Noncompliance
On October 28, 2022, the Company received a letter from the staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) providing notification that the Company no longer complies with the $50 million in market value of listed securities standard for continued listing on the Nasdaq Global Market under Nasdaq’s Listing Rule 5450(b)(2)(A) and that the Company also does not comply with either of the two alternative standards of Listing Rule 5450(b), the equity standard and the total assets and total revenue standard. On April 19, 2023, Nasdaq approved the Company’s application to transfer the listing of its common stock and warrants from the Nasdaq Global Market to The Nasdaq Capital Market, effective April 21, 2023. The Company complies with the net income from continuing operations listing standard of the Nasdaq Capital Market, and the transfer of the listing resolves the October 28, 2022 noncompliance notification.
On November 2, 2022, Leafly received another letter from the Staff providing notification that, for the previous 30 consecutive business days, the bid price for Leafly’s common stock had closed below the $1.00 per share minimum bid price requirement for continued listing under Nasdaq Listing Rule 5450(a)(1). The notices have no immediate effect on the listing of the Company’s common stock or warrants.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided an initial period of 180 calendar days, or until May 1, 2023, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before May 1, 2023 and we must otherwise satisfy the Nasdaq Global Market’s requirements for continued listing. The Company's failure to regain compliance during this period could result in delisting.
If the Company does not regain compliance with the minimum bid price requirement by May 1, 2023, Nasdaq would notify the Company that its securities would be subject to delisting. In the event of such a notification, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.
On May 2, 2023, a letter was received from the Staff (Note 19).
12
NOTE 9 — Revenue and Contract Balances
The following table presents the Company's revenue by service type:
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
|
| ||
Advertising 1 |
|
| $ | 11,186 |
|
| $ | 11,329 |
|
Other services 1 |
|
|
| 63 |
|
|
| 91 |
|
|
| $ | 11,249 |
|
| $ | 11,420 |
| |
|
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Advertising | $ | 11,731 | $ | 10,840 | $ | 34,959 | $ | 30,813 | |||||||||||||||
Other services | 50 | 56 | 292 | 146 | |||||||||||||||||||
$ | 11,781 | $ | 10,896 | $ | 35,251 | $ | 30,959 |
The following table presents the Company's revenue by geographic region:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
United States1 | $ | 11,140 | $ | 9,757 | $ | 32,787 | $ | 27,644 | |||||||||||||||
All other countries1 | 641 | 1,139 | 2,464 | 3,315 | |||||||||||||||||||
$ | 11,781 | $ | 10,896 | $ | 35,251 | $ | 30,959 |
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
|
| ||
United States 1 |
|
| $ | 10,805 |
|
| $ | 10,526 |
|
All other countries 1 |
|
|
| 444 |
|
|
| 894 |
|
|
| $ | 11,249 |
|
| $ | 11,420 |
| |
|
|
|
|
|
|
|
|
The following tables presents the Company's revenue by state:
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
|
| ||
Arizona |
|
|
| 20 | % |
|
| 18 | % |
California |
|
|
| 12 | % |
|
| 11 | % |
Oregon |
|
|
| 11 | % |
|
| 11 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Arizona | 19 | % | 16 | % | 18 | % | 16 | % | |||||||||||||||
California | 13 | % | 11 | % | 11 | % | 10 | % | |||||||||||||||
Oregon | 10 | % | 11 | % | 10 | % | 12 | % |
The following table presents the Company's revenue by timing of recognition:
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
Over Time 1 |
|
|
|
|
|
|
| ||
Retail 2 |
|
| $ | 9,470 |
|
| $ | 9,179 |
|
Brands 3 |
|
|
| 1,362 |
|
|
| 1,564 |
|
|
|
| 10,832 |
|
|
| 10,743 |
| |
Point in time 1 |
|
|
|
|
|
|
| ||
Brands 4 |
|
|
| 417 |
|
|
| 677 |
|
|
| $ | 11,249 |
|
| $ | 11,420 |
| |
|
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||
Over time | ||||||||||||||||||||
Retail1 | $ | 9,042 | $ | 8,606 | $ | 27,286 | $ | 24,572 | ||||||||||||
Brands2 | 1,759 | 1,581 | 5,067 | 4,591 | ||||||||||||||||
$ | 10,801 | $ | 10,187 | $ | 32,353 | $ | 29,163 | |||||||||||||
Point in time | ||||||||||||||||||||
Brands3 | 980 | 709 | 2,898 | 1,796 | ||||||||||||||||
$ | 11,781 | $ | 10,896 | $ | 35,251 | $ | 30,959 |
13
Revenues recognized over time are associated with software subscriptions, display ads and audience extension. Revenues recognized at a point in time are associated with branded content and channel advertising. There are no material variations in delivery and revenue recognition periods within the over time category.
Contract liabilities consist of deferred revenue, which is recorded on the Consolidated Balance Sheets when the Company has received consideration, or has the right to receive consideration, in advance of transferring the performance obligations under the contract to the customer.
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
|
| ||
Balance, beginning of period |
|
| $ | 1,958 |
|
| $ | 1,975 |
|
Add: net increase in current period contract liabilities |
|
|
| 1,951 |
|
|
| 2,184 |
|
Less: revenue recognized from beginning balance |
|
|
| (1,729 | ) |
|
| (1,593 | ) |
Balance, end of period |
|
| $ | 2,180 |
|
| $ | 2,566 |
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||
Balance, beginning of period | $ | 2,467 | $ | 2,079 | $ | 1,975 | $ | 1,585 | ||||||||||||
Add: net increase in current period contract liabilities | 1,630 | 1,947 | 1,976 | 2,112 | ||||||||||||||||
Less: revenue recognized from beginning balance | (2,045) | (1,847) | (1,899) | (1,518) | ||||||||||||||||
Balance, end of period | $ | 2,052 | $ | 2,179 | $ | 2,052 | $ | 2,179 |
A majority of the deferred revenue balance as of September 30, 2022March 31, 2023 is expected to be recognized in the subsequent 12-month period. No other contract assets or liabilities are recorded on the Company’s Consolidated Balance Sheets as of September 30, 2022 orMarch 31, 2023 and December 31, 2021.2022.
The Company’s effective tax rate was 0%0% for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022. The effective tax rate was lower than the U.S. federal statutory rate of 21% due to the Company’s full valuation allowance recorded against its deferred tax assets.
The Company had net operating loss carryforwards (“NOLs”) for federal, state and foreign income tax purposes of approximately $85,430, $60,478 and $5,801, respectively, as of December 31, 2022. The Company's state NOL will begin to expire in 2039, and all of the Company's federal NOLs will last indefinitely.
The Internal Revenue Code of 1986, as amended (the “Code”), imposes restrictions on the utilization of NOLs in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use NOLs may be limited as prescribed under Code Section 382 (“IRC Section 382”). Events which may cause limitations in the amount of the NOLs that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state NOLs may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2022March 31, 2023 and December 31, 2021.2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company has beenis subject to income tax examinations by major taxing authorities since inception.
14
The Company files income tax returns in the Business Combination, the Company’sU.S. federal jurisdiction and various state and foreign net operating loss carryforwards were $53,904, $35,976jurisdictions. Management believes all the income tax returns filed since inception remain open to examination by the major domestic and $4,303, respectively, as of December 31, 2021. Federal and state tax laws impose substantial restrictions onforeign taxing jurisdictions to which the utilization of net operating loss carryforwards in the event of an "ownership change" as defined in Section 382 of the Internal Revenue code. Such a limitation could result in limitation in the use of the net operating losses in future years and possibly a reduction of the net operating losses available.Company is subject due to NOLs.
NOTE 11 — Convertible Promissory Notes
The 2022 Notes are unsecured convertible senior notes due 2025. They are convertible at the option of the holders at any time before maturity at an initial conversion share price of $12.50.$12.50 per $1,000 principal amount of 2022 Notes and per $1,000 of accrued but unpaid interest on any converted 2022 Notes. In addition, the Company may, at its election, force the conversion of the 2022 Notes on or after January 31, 2024, if the volume-weighted average trading price of the Company’s common stock exceeds $18.00$18.00 for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days. The Company also has the option, on or after January 31, 2023 and prior to the 40th trading day immediately before the maturity date and subject to the holders’ ability to optionally convert, to redeem all or a portion of the 2022 Notes at a cash redemption price equal to 100%100% of the principal amount of the 2022 Notes, plus accrued and unpaid interest, if any. The holders of the 2022 Notes have the right to cause the Company to repurchase for cash all or a portion of the 2022 Notes held by such holder upon the occurrence of a “fundamental change” (as defined)defined in the Note Purchase Agreement) or in connection with certain asset sales, in each case at a price equal to 100%100% of par plus accrued and unpaid interest, if any.
As of September 30, 2022,March 31, 2023, the net carrying amount of the 2022 Notes was $28,726,$28,999, which includes unamortized issuance costs and debt discount of $1,274.$1,001, which will be amortized over the remaining 22 months. The estimated fair value of the convertible debt instruments was approximately $23,000$25,300 as of September 30, 2022.March 31, 2023. The fair value of the 2022 Notes was measured using a combination of an income approachthe Bloomberg OVCV model and Black-ScholesCNVI model bothwhich modifies the underlying OVCV program. These models incorporate inputs for volatility, Leafly’s stock price, time to maturity, the risk-free rate and Leafly’s credit spread, some of which are considered Level 3 inputs in the fair value hierarchy.
2021 Notes
Legacy Leafly issued a series of convertible promissory notes in June 2021 totaling approximately $23,970.$23,970. In August 2021, Legacy Leafly issued additional convertible promissory notes totaling $7,500$7,500 to Merida Capital, an affiliate of Merida. (Both note issuances are collectively referred to below as the “2021 Notes”).
The 2021 Notes bore interest at 8%8% annually and were considered traditional convertible debt with the entire amount recognized as a liability (with no amount allocated to equity), reduced for direct issuance costs, with initial and subsequent recognition at amortized cost in accordance with the interest method. Unless converted, the entire balance of principal and accrued but unpaid interest was due on December 3, 2022. The 2021 Notes were contingently convertible upon the occurrence of certain events, to include a qualified financing, a non-qualified financing, or in a qualified public transaction.
On February 4, 2022, in connection with the Business Combination, the 2021 Notes were converted to approximately 4,128 shares of Leafly common stock at the conversion price of approximately $2.63,$2.63, which was 80%80% of the implied price per share of common stock in the Business Combination. Upon closing of the Business Combination, the shares of common
15
NOTE 12 — Stockholders’ Equity
The Consolidated Statements of Changes in Stockholders' Equity (Deficit)Deficit reflect the reverse recapitalization on February 4, 2022, as discussed in Note 1.1. Since the CompanyLegacy Leafly was determined to be the accounting acquirer in the transaction,Business Combination, all periods presented prior to consummation of the transactionBusiness Combination reflect the historical activity and balances of Legacy Leafly Inc. (other than common and preferred stock and potentially issuable shares underlying stock options and convertible promissory notes, which have been retroactively restated).
Common Stock
On February 4, 2022, the Business Combination was consummated pursuant to the Merger Agreement. Prior to the Business Combination, Legacy Leafly's capital stock consisted of Series A preferred stock and common stock. Upon the consummation of the Business Combination, all issued and outstanding shares of Series A preferred stock converted to shares of nonredeemable common stock.
As of September 30, 2022March 31, 2023 Leafly's authorized capital stock consisted of:
We account for the Escrow Shares as derivative liabilities, remeasured to fair value on a recurring basis, with changes in fair value recorded to earnings. See Note 2018 for additional information.
Stockholder Earn-Out Rights
The Rights will be earned and shares of common stock will be issued as follows:
16
Preferred Stock
The Leafly board of directors is authorized, subject to limitations prescribed by the law of the State of Delaware, to issue Leafly preferred stock from time to time in one or more series. The Leafly board of directors is authorized to establish the number of shares to be included in each such series and to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional, special and other rights, if any, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. The Leafly board of directors is able, without stockholder approval, to issue Leafly preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the Leafly common stock and could have anti-takeover effects. The ability of the Leafly board of directors to issue Leafly preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of Leafly or the removal of existing management. Leafly did notnot have any issued and outstanding shares of preferred stock as of September 30,March 31, 2023 or December 31, 2022.
17
NOTE 13 — Warrants and Forward Share Purchase Agreements
As of both September 30, 2022March 31, 2023 and December 31, 2021,2022, there were 6,501 warrants outstanding that had been included in the units issued in Merida’s initial public offering (the "Public Warrants"“Public Warrants”). Each Public Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50.$11.50. Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will becomebecame exercisable on the later of (a) 30 days after the completion of a merger or (b) 12 months from the closing of the IPO.Business Combination. No warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock.
Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the Public Warrants is not effective within a specified period following the consummation of a merger, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a merger or earlier upon redemption or liquidation.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
As of both September 30, 2022March 31, 2023 and December 31, 2021,2022, there were 3,950 warrants outstanding that Merida had sold to the Sponsor and EarlyBirdCapital in a private placement that took place simultaneously with Merida’s initial public offering ("(“the Private Warrants"Warrants”). The Private Warrants are identical to the Public Warrants, except that the Private Warrants and the shares of common stock issuable upon the exercise of the Private Warrants were not transferable, assignable or salable until after the completion of the Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. The exercise price and number of shares of common stock issuable upon exercise of the warrantsPrivate Warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrantsPrivate Warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
18
We account for the Private Warrants as derivative liabilities, remeasured to fair value on a recurring basis, with changes in the fair value recorded to earnings. See Note 2018 for additional information.
Forward Share Purchase Agreements
On May 3, 2022, Leafly and the holders entered into amendments to the FPAs (the “Amended FPAs”). The Amended FPAs modified the price at which the applicable holder has the right, but not the obligation, to have Leafly repurchase certain shares held by the applicable holder as of the closing of the Business Combination and not later sold into the market to a price of $10.16$10.16 per share (with respect to 686 of the shares subject to the Amended FPAs) and $10.31$10.31 per share (with respect to 2,404 of the shares subject to the Amended FPAs). The Amended FPAs also modified the date by which such holders may elect to have Leafly repurchase their shares to August 1, 2022. In connection with the Amended FPAs, certain amendments were also made to the escrow agreements in respect toof the escrow accounts.
During the three and nine monthsyear ended September 30,December 31, 2022, $720 and $8,089, respectively,a total of $8,089 was released from the escrow accounts due to the FPA holders selling shares in the open market, which was accordingly reclassified on the Company's balance sheet from restricted cash to cash.
Effective August 1, 2022, the FPA holders elected to have Leafly repurchase their remaining 3,081 shares covered by the FPAs for an aggregate repurchase price of $31,663.$31,663. As a result, the shares repurchased have been removed from Leafly's outstanding shares effective as of the date of purchase and placed into treasury. The FPA holders elected to have all but $360$360 disbursed from the escrow account and are able to claim the remainder any time until August 1, 2023. If unclaimed, the remaining funds in escrow will be distributed to the Company. Also, in connection with the settlement, 25 shares of the Company’s common stock held by Merida Holdings, LLCthe Sponsor were canceled, according to an agreement between the Company and Merida Holdings, LLCthe Sponsor entered into upon execution of the FPAs.
19
NOTE 14 — Equity Incentive and Other Plans
The Company currently has four equity plans: the New Leafly 2021 Equity Incentive Plan (the “2021 Plan”), the Legacy Leafly 2018 Equity Incentive Plan (the “2018 Plan”), the New Leafy Earn OutEarn-Out Plan (“Earn Out(the “Earn-Out Plan”), and the New Leafly 2021 Employee Stock Purchase Plan (the “ESPP”), which are discussed in this Note 14 and in Note 15.. Awards under the
Stock-Based Compensation
2021 Plan
The 2021 Plan became effective immediately upon closing of the Business Combination. Pursuant to the 2021 Plan, 4,502 shares of common stock were initially reserved for issuance. During the term of the 2021 Plan, the number of shares of common stock thereunder automatically increases on each January 1, commencing on January 1, 2023, and ending on (and including) January 1, 2031, by the lesser of (i) 10%10% of the fully diluted shares of common stock as of the last day of the preceding fiscal year and (ii) 4,502 shares (adjusted pursuant to the terms of the 2021 Plan).
2022 Awards
In August 2022 and October 2022, the Company’s compensation committee of the board of directors orand an authorized executive of the Company, as applicable, granted stock options to purchase an aggregate of approximately 101102 shares of common stock at ana weighted-average exercise price of $1.98$1.98 per share and granted 1,228an aggregate of 2,560 restricted stock units.units (”RSUs”) and performance stock units (”PSUs”). Of the PSUs granted, 683 were market-based awards made to executives with a grant date fair value of $0.04 per share with vesting based on achievement of a $1.0 billion market cap by February 4, 2026, and 137 were performance awards made to executives with a grant date fair value of $0.81 per share with vesting based in part on achievement of a fiscal year 2022 Adjusted EBITDA target, which was achieved. Prior to such grants, no grants had been made under the 2021 Plan. See Note 21 for awards subsequent to September 30, 2022.
2023 Awards
Leafly’s compensation committee approved the grant of 631 annual incentive plan RSUs on March 14, 2023, which vest over four months.
Stock Options
The fair value of each stock option award to employees is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptionsNo options were used as inputs togranted under the pricing model for options granted2021 Plan during the three and nine months ended September 30, 2022:
20
| Number of |
|
| Weighted Average |
|
| Aggregate |
|
| Weighted Average |
| |||||
Outstanding at January 1, 2023 |
|
| 101 |
|
| $ | 1.98 |
|
| $ | — |
|
|
| 9.61 |
|
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||
Forfeited or expired |
|
| — |
|
|
| 1.60 |
|
|
|
|
|
|
| ||
Outstanding at March 31, 2023 |
|
| 101 |
|
| $ | 1.98 |
|
| $ | — |
|
|
| 9.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Vested and exercisable |
|
| 27 |
|
| $ | 1.98 |
|
| $ | — |
|
|
| 9.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (in years) | |||||||||||||||||||||||
Outstanding at June 30, 2022 | — | $ | — | $ | — | — | ||||||||||||||||||||
Granted | 101 | 1.98 | ||||||||||||||||||||||||
Exercised | — | — | ||||||||||||||||||||||||
Forfeited or expired | — | — | ||||||||||||||||||||||||
Outstanding at September 30, 2022 | 101 | $ | 1.98 | $ | — | 9.89 | ||||||||||||||||||||
Vested and exercisable | — | $ | — | $ | — | — |
Restricted Stock Units and nine months ended September 30, 2022 was $1.16 per share.
| Number of |
|
| Weighted Average |
|
| Total Fair Value |
| ||||
Unvested at January 1, 2023 |
|
| 2,058 |
|
| $ | 1.30 |
|
|
|
| |
Granted |
|
| 631 |
|
|
| 0.48 |
|
| $ | 305 |
|
Vested |
|
| (359 | ) |
|
| 0.94 |
|
| $ | 188 |
|
Forfeited |
|
| (485 | ) |
|
| 1.00 |
|
|
|
| |
Unvested at March 31, 2023 |
|
| 1,845 |
|
| $ | 0.89 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Number of Shares | Weighted Average Grant Date Fair Value | Total Fair Value | |||||||||||||||||||||
Unvested at June 30, 2022 | — | $ | — | ||||||||||||||||||||
Granted | 1,228 | 1.98 | $ | 2,432 | |||||||||||||||||||
Vested | (173) | 1.98 | $ | 325 | |||||||||||||||||||
Forfeited | (65) | 1.98 | |||||||||||||||||||||
Unvested at September 30, 2022 | 990 | $ | 1.98 | ||||||||||||||||||||
As of September 30, 2022,March 31, 2023, there was $1,825 of$1,437 total unrecognized compensation cost related to unvested restricted stock unitsRSUs and $24 total unrecognized compensation cost related to market-based PSUs granted under the 2021 Plan. ThatThe total cost is expected to be recognized over a weighted-average period of 3.342.57 years.
2018 Plan
The 2018 Plan became effective on April 17, 2018. The 2018 Plan terminated upon closing of the Business Combination in 2022, but then outstandingthen-outstanding options under the 2018 Plan remain outstanding pursuant to their terms, with adjustments to the number of shares and exercise prices to reflect the terms of the Business Combination.
21
Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (in years) | ||||||||||||||||||||||||||
Outstanding at January 1, 2022 | 3,851 | $ | 1.77 | ||||||||||||||||||||||||||
Exercised | (114) | 1.12 | |||||||||||||||||||||||||||
Forfeited or expired | (56) | 1.08 | |||||||||||||||||||||||||||
Outstanding at March 31, 2022 | 3,681 | $ | 1.78 | $ | 23,918 | 8.62 | |||||||||||||||||||||||
Exercised | (29) | $ | 1.05 | ||||||||||||||||||||||||||
Forfeited or expired | (3) | $ | 2.30 | ||||||||||||||||||||||||||
Outstanding at June 30, 2022 | 3,649 | $ | 1.78 | $ | 11,307 | 8.35 | |||||||||||||||||||||||
Exercised | (5) | 0.79 | |||||||||||||||||||||||||||
Forfeited or expired | (110) | 7.75 | |||||||||||||||||||||||||||
Outstanding at September 30, 2022 1 | 3,534 | $ | 1.60 | $ | 84 | 8.29 | |||||||||||||||||||||||
Vested and exercisable | 1,849 | $ | 1.18 | $ | 82 | 7.80 |
| Number of |
|
| Weighted Average |
|
| Aggregate |
|
| Weighted Average |
| |||||
Outstanding at January 1, 2023 |
|
| 3,431 |
|
| $ | 1.60 |
|
|
|
|
|
|
| ||
Exercised |
|
| — |
|
|
| 0.40 |
|
|
|
|
|
|
| ||
Forfeited or expired |
|
| (446 | ) |
|
| 1.40 |
|
|
|
|
|
|
| ||
Outstanding at March 31, 2023 1 |
|
| 2,985 |
|
| $ | 1.63 |
|
| $ | 15 |
|
|
| 4.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Vested and exercisable |
|
| 1,777 |
|
| $ | 1.25 |
|
| $ | 15 |
|
|
| 4.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation Expense
The following tablestable presents the classification of stock-based compensation expense under the 2018 Plan and the 2021 Plan:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Sales and marketing |
| $ | 76 |
|
| $ | 34 |
|
Product development |
|
| 109 |
|
|
| 18 |
|
General and administrative |
|
| 473 |
|
|
| 1,872 |
|
|
| $ | 658 |
|
| $ | 1,924 |
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Sales and marketing | $ | 77 | $ | 15 | $ | 137 | $ | 65 | |||||||||||||||
Product development | 86 | 14 | 123 | 126 | |||||||||||||||||||
General and administrative | 608 | 179 | 2,899 | 538 | |||||||||||||||||||
$ | 771 | $ | 208 | $ | 3,159 | $ | 729 |
2022 Option Modification
Concurrent with the closing of the Business Combination, the vesting provisions of certain stock options previously granted in 2021 under the 2018 Plan
Earn-Out Plan
The Earn OutEarn-Out Plan became effective immediately upon closing of the Business Combination. Pursuant to the Earn OutEarn-Out Plan, approximately 571 shares of common stock have been reserved for issuance to employees and certain other eligible parties in the form of restricted stock units (“RSUs”).RSUs. These RSUs will vest if the Company achieves certain thresholds prior to the third anniversary of the Merger. No RSUs have been awarded under the Earn OutEarn-Out Plan as of September 30, 2022.
: A stock option to purchase 1,458 shares of common stock will vest upon the earlier of (a) the closing of the Initial Public Offering of the Company's common stock or (b) a change in control, provided the recipient remains in continuous service.
22
thereunder automatically increases on each January 1, commencing on January 1, 2023 and ending on (and including) January 1, 2031, by the lesser of (i) 2.5%2.5% of the fully diluted shares of common stock as of the last day of the preceding fiscal year and (ii) 1,126 shares (as adjusted pursuant to the terms of the ESPP). Effective January 1, 2023, 1,104 shares of common stock were available for issuance under the ESPP. On March 15, 2023, Leafly’s employees purchased 289 shares for a total purchase price of $120. The Company's current offering period runs from SeptemberMarch 16, 20222023 through MarchSeptember 15, 2023. Certain employees have enrolled but no purchases had been made
Defined Contribution Plan
The Company recognized expense from matching contributions to the Company-sponsored defined contribution retirement (401k) plan as of September 30, 2022.follows for the periods presented:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
401(k) matching contributions |
| $ | 233 |
|
| $ | 244 |
|
|
|
|
|
|
|
|
NOTE 1615 — Related Party Transactions
At December 31, 2022, the Company owed $10 to two members of its board of directors, which is included in accrued expenses and other current liabilities on Leafly's consolidated balance sheet and was repaid prior to March 31, 2023.
NOTE 17 – Defined Contribution Plan
Basic and diluted net income (loss)loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. Under the two-class method, basic net income (loss)loss per share attributable to common stockholders is computed by dividing the net income (loss)loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Shares repurchased and held in treasury by the Company are removed from the weighted-average number of shares of common stock outstanding as of the date of repurchase.
The Company considers its preferred stock to be participating securities. As of September 30,March 31, 2023 and March 31, 2022, the Company had 5,4291,625 outstanding shares of common stock that are in escrow and subject to earn-out conditions and thus forfeiture, which do not meet the criteria for participating securities (see Note 12 — Stockholders' Equity for additional information). Net income (loss)loss is attributed to common stockholders and participating securities based on their participation rights. Net income (loss)loss is not attributed to the preferred stock as the holders of the preferred stock do not have a contractual obligation to share in any losses.
23
Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of non-participating shares of common stock that are subject to forfeiture, stock options, preferred stock,
The following table presents the computation of basic and diluted net income (loss)loss per share attributable to common stockholders, as a group, for the periods presented:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Net loss |
| $ | (5,397 | ) |
| $ | (19,376 | ) |
|
|
|
|
|
| |||
Weighted average shares outstanding |
|
| 38,705 |
|
|
| 37,525 |
|
|
|
|
|
|
|
| ||
Basic net loss per share |
| $ | (0.14 | ) |
| $ | (0.52 | ) |
Diluted net loss per share |
| $ | (0.14 | ) |
| $ | (0.52 | ) |
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net income (loss) (A) | $ | 15,454 | $ | (4,454) | $ | 10,837 | $ | (6,880) | |||||||||||||||
Income impact of FPAs | (3,939) | — | (346) | — | |||||||||||||||||||
Income impact of convertible promissory notes | 600 | — | — | — | |||||||||||||||||||
Total undistributed income (loss) (B) | 12,115 | (4,454) | 10,491 | (6,880) | |||||||||||||||||||
Weighted average shares outstanding (C) | 35,580 | 24,923 | 35,260 | 24,832 | |||||||||||||||||||
Dilutive effect of FPAs | 3,547 | — | 1,140 | — | |||||||||||||||||||
Dilutive effect of convertible promissory notes | 2,477 | — | — | — | |||||||||||||||||||
Dilutive effect of stock-based awards | 1,611 | — | 2,304 | — | |||||||||||||||||||
Common stock and common stock equivalents (D) | 43,215 | 24,923 | 38,704 | 24,832 | |||||||||||||||||||
Net income (loss) per share: | |||||||||||||||||||||||
Basic (A/C) | $ | 0.43 | $ | (0.18) | $ | 0.31 | $ | (0.28) | |||||||||||||||
Diluted (B/D) | $ | 0.28 | $ | (0.18) | $ | 0.27 | $ | (0.28) |
During 2022, the Class 1, 2, and 3 shares were outstanding from January 1, 2022 through February 3, 2022, while only one class of common stock was outstanding beginning February 4, 2022. During 2021, only the Class 1, 2, and 3 shares were outstanding. Following are the calculations of basic and diluted net income (loss)loss per share for each class of common stock (refer to the tables above for the impact of common stock equivalents on common shares for the three and nine months ended September 30, 2022)periods presented):
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Three Months Ended March 31, 2022 |
| |||||||||||||
| Common |
|
| Class 1 |
|
| Class 2 |
|
| Class 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss | $ | (12,013 | ) |
| $ | (2,748 | ) |
| $ | (4,030 | ) |
| $ | (585 | ) |
Weighted average shares outstanding |
| 35,206 |
|
|
| 3,543 |
|
|
| 5,196 |
|
|
| 754 |
|
Common stock and common stock equivalents |
| 35,206 |
|
|
| 3,543 |
|
|
| 5,196 |
|
|
| 754 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic net loss per share | $ | (0.34 | ) |
| $ | (0.78 | ) |
| $ | (0.78 | ) |
| $ | (0.78 | ) |
Diluted net loss per share | $ | (0.34 | ) |
| $ | (0.78 | ) |
| $ | (0.78 | ) |
| $ | (0.78 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||
Common | Class 1 | Class 2 | Class 3 | ||||||||||||||||||||
Net income (loss) | $ | 15,454 | $ | (1,676) | $ | (2,458) | $ | (320) | |||||||||||||||
Weighted average shares outstanding | 35,580 | 9,379 | 13,755 | 1,789 | |||||||||||||||||||
Common stock and common stock equivalents | 43,215 | 9,379 | 13,755 | 1,789 | |||||||||||||||||||
Basic net income (loss) per share | $ | 0.43 | $ | (0.18) | $ | (0.18) | $ | (0.18) | |||||||||||||||
Diluted net income (loss) per share | $ | 0.28 | $ | (0.18) | $ | (0.18) | $ | (0.18) |
Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||
Common | Class 1 | Class 2 | Class 3 | ||||||||||||||||||||
Net loss | $ | 10,837 | $ | (2,598) | $ | (3,811) | $ | (471) | |||||||||||||||
Weighted average shares outstanding | 35,260 | 9,379 | 13,755 | 1,698 | |||||||||||||||||||
Common stock and common stock equivalents | 38,704 | 9,379 | 13,755 | 1,698 | |||||||||||||||||||
Basic net income (loss) per share | $ | 0.31 | $ | (0.28) | $ | (0.28) | $ | (0.28) | |||||||||||||||
Diluted net income (loss) per share | $ | 0.27 | $ | (0.28) | $ | (0.28) | $ | (0.28) |
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Shares subject to warrants |
|
| 10,451 |
|
|
| 10,451 |
|
Shares subject to convertible promissory notes |
|
| 2,480 |
|
|
| 2,400 |
|
Shares subject to forward purchase agreements |
|
| — |
|
|
| 3,861 |
|
Escrow Shares |
|
| 1,625 |
|
|
| 1,625 |
|
Shares subject to outstanding common stock options, RSUs and PSUs |
|
| 4,853 |
|
|
| 3,681 |
|
Shares subject to stockholder earn-out rights |
|
| 5,429 |
|
|
| 5,429 |
|
|
| 24,838 |
|
|
| 27,447 |
| |
|
|
|
|
|
|
|
24
Three Months Ended
September 30,Nine Months Ended September 30, 2022 2021 2022 2021 Shares subject to warrants 10,451 — 10,451 — Shares subject to convertible promissory notes — 12,240 2,428 12,240 Preferred stock — 6,141 — 6,141 Escrow Shares 1,625 — 1,625 — Shares subject to outstanding common stock options and RSUs 1,056 3,785 1,056 3,785 Shares subject to stockholder earn-out rights 5,429 — 5,429 — $ 18,561 $ 22,166 $ 20,989 $ 22,166
See Note 11 for additional information regarding convertible promissory notes, Note 12 for additional information regarding stockholder earn-out rights, preferred stock, and Escrow Shares, Note 13 for additional information regarding warrants, and Note 14 for additional information regarding stock options, RSUs and RSUs.PSUs.
NOTE 1917 — Segment Reporting
Segment revenue and gross profit were as follows during the periods presented:
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
Revenue: |
|
|
|
|
|
|
| ||
Retail |
|
| $ | 9,470 |
|
| $ | 9,179 |
|
Brands |
|
|
| 1,779 |
|
|
| 2,241 |
|
Total revenue |
|
| $ | 11,249 |
|
| $ | 11,420 |
|
|
|
|
|
|
|
|
| ||
Gross profit: |
|
|
|
|
|
|
| ||
Retail |
|
| $ | 8,390 |
|
| $ | 8,139 |
|
Brands |
|
|
| 1,513 |
|
|
| 1,826 |
|
Total gross profit |
|
| $ | 9,903 |
|
| $ | 9,965 |
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||
Retail | $ | 9,042 | $ | 8,606 | $ | 27,286 | $ | 24,572 | |||||||||||||||
Brands | 2,739 | 2,290 | 7,965 | 6,387 | |||||||||||||||||||
Total revenue | $ | 11,781 | $ | 10,896 | $ | 35,251 | $ | 30,959 | |||||||||||||||
Gross profit: | |||||||||||||||||||||||
Retail | 7,979 | 7,744 | 24,193 | 22,339 | |||||||||||||||||||
Brands | 2,287 | 1,891 | 6,647 | 5,056 | |||||||||||||||||||
Total gross profit | $ | 10,266 | $ | 9,635 | $ | 30,840 | $ | 27,395 |
Assets are not allocated to segments for internal reporting presentations, nor are depreciation and amortization.
Geographic Areas
The Company’s operations are primarily in the U.S. and to a lesser extent, in certain other countries.Canada. Refer to Note 9 for revenue classified by major geographic area.
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
25
The Company’s financial instruments include cash equivalents, restricted cash, accounts receivable from customers, accounts payable and accrued liabilities, all of which are typically short-term in nature. The Company believes that the carrying amounts of these financial instruments reasonably approximate their fair values due to their short-term nature.
The following table presents information about the Company’s derivative liabilities that are measured at fair value on a recurring basis beginning February 4, 2022 (the date of closing of the Business Combination) when the derivative liabilities were assumed, and discloses the fair value hierarchy level of the valuation inputs the Company utilized to determine such fair value:Description Level Fair Value at September 30, 2022 Fair Value at June 30, 2022 Fair Value at February 4, 2022 Private Warrants derivative liability 3 $ 662 $ 3,693 $ 3,916 $ 3,031 $ 3,254 3 — 17,763 14,170 3,939 346 Escrow Shares derivative liability 3 47 3,481 6,868 3,434 6,821 Stockholder earn-out rights derivative liability 3 288 12,147 26,131 11,859 25,843 Total $ 997 $ 37,084 $ 51,085 22,264 $ 36,264
|
|
|
|
| Fair Value at |
|
| Change in Fair |
| |||||||||||||||||||
Description |
| Level |
|
| March 31, 2023 |
|
| December 31, 2022 |
|
| March 31, 2022 |
|
| February 4, 2022 |
|
| Three Months Ended |
|
| Three Months Ended March 31, 2022 |
| |||||||
Private Warrants derivative liability |
|
| 3 |
|
| $ | 130 |
|
| $ | 182 |
|
| $ | 7,989 |
|
| $ | 3,916 |
|
| $ | 52 |
|
| $ | (4,073 | ) |
Forward share purchase agreements derivative liability 1 |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 7,452 |
|
|
| 14,170 |
|
|
| — |
|
|
| 6,718 |
|
Escrow Shares derivative liability |
|
| 3 |
|
|
| 7 |
|
|
| 52 |
|
|
| 10,129 |
|
|
| 6,868 |
|
|
| 45 |
|
|
| (3,261 | ) |
Stockholder earn-out rights derivative liability |
|
| 3 |
|
|
| 34 |
|
|
| 204 |
|
|
| 35,912 |
|
|
| 26,131 |
|
|
| 170 |
|
|
| (9,781 | ) |
Total |
|
|
|
| $ | 171 |
|
| $ | 438 |
|
| $ | 61,482 |
|
| $ | 51,085 |
|
| $ | 267 |
|
| $ | (10,397 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Warrants Derivative Liability
The Private Warrants were valued using a Black-Scholes model and the following Level 3 inputs:
| March 31, 2023 |
|
| December 31, 2022 |
|
| March 31, 2022 |
|
| February 4, 2022 |
| |||||
Exercise price |
| $ | 11.50 |
|
| $ | 11.50 |
|
| $ | 11.50 |
|
| $ | 11.50 |
|
Stock price |
| $ | 0.40 |
|
| $ | 0.65 |
|
| $ | 8.28 |
|
| $ | 6.53 |
|
Volatility |
|
| 88.8 | % |
|
| 75.0 | % |
|
| 36.7 | % |
|
| 34.3 | % |
Term (in years) |
|
| 3.84 |
|
|
| 4.09 |
|
|
| 4.85 |
|
|
| 5.00 |
|
Risk-free rate |
|
| 3.7 | % |
|
| 4.1 | % |
|
| 2.4 | % |
|
| 1.8 | % |
Dividend yield |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 | June 30, 2022 | February 4, 2022 | ||||||||||||
Exercise price | $ | 11.50 | $ | 11.50 | $ | 11.50 | ||||||||
Stock price | $ | 0.68 | $ | 4.50 | $ | 6.53 | ||||||||
Volatility | 98.0% | 51.6% | 34.3% | |||||||||||
Term (in years) | 4.34 | 4.59 | 5.00 | |||||||||||
Risk-free rate | 4.1% | 3.0% | 1.8% | |||||||||||
Dividend yield | 0.0% | 0.0% | 0.0% |
The volatility input was calculated using a weighted average of historical volatilities from select benchmark companies and the volatility of the Public Warrants. The term input represents the maximum contractual term, though the Private Warrants may be exercised earlier. The interest rate input is the U.S. Treasury constant maturity rate for the instrument that most closely matches the term input.
The FPAs were valued using a Black-Scholes model and the following Level 3 inputs:
|
|
| March 31, 2022 |
|
| February 4, 2022 |
| |||||
Exercise price - one agreement |
|
|
|
|
| $ | 10.16 |
|
| $ | 10.16 |
|
Exercise price - three agreements |
|
|
|
|
| $ | 10.01 |
|
| $ | 10.01 |
|
Stock price |
|
|
|
|
| $ | 8.28 |
|
| $ | 6.53 |
|
Volatility |
|
|
|
|
|
| 72.6 | % |
|
| 63.9 | % |
Term (in years) |
|
|
|
|
|
| 0.09 |
|
|
| 0.24 |
|
Risk-free rate |
|
|
|
|
|
| 0.2 | % |
|
| 0.2 | % |
Dividend yield |
|
|
|
|
|
| 0.0 | % |
|
| 0.0 | % |
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 | June 30, 2022 | February 4, 2022 | ||||||||||||
Exercise price - one agreement | N/A | $ | 10.31 | $ | 10.16 | |||||||||
Exercise price - three agreements | N/A | $ | 10.16 | $ | 10.01 | |||||||||
Stock price | N/A | $ | 4.50 | $ | 6.53 | |||||||||
Volatility | N/A | 70.4% | 63.9% | |||||||||||
Term (in years) | N/A | 0.09 | 0.24 | |||||||||||
Risk-free rate | N/A | 1.3% | 0.2% | |||||||||||
Dividend yield | N/A | 0.0% | 0.0% |
Escrow Shares Derivative Liability
The Escrow Shares derivative liability was calculated using a binomial lattice modelMonte Carlo simulation and the following Level 3 inputs:
| March 31, 2023 |
|
| December 31, 2022 |
|
| March 31, 2022 |
|
| February 4, 2022 |
| |||||
First stock price trigger |
| $ | 13.50 |
|
| $ | 13.50 |
|
| $ | 13.50 |
|
| $ | 13.50 |
|
Second stock price trigger |
| $ | 15.50 |
|
| $ | 15.50 |
|
| $ | 15.50 |
|
| $ | 15.50 |
|
Stock price |
| $ | 0.40 |
|
| $ | 0.65 |
|
| $ | 8.28 |
|
| $ | 6.53 |
|
Volatility |
|
| 87.5 | % |
|
| 86.0 | % |
|
| 63.0 | % |
|
| 64.0 | % |
Term (in years) |
|
| 1.84 |
|
|
| 2.09 |
|
|
| 2.85 |
|
|
| 3.00 |
|
Risk-free rate |
|
| 4.1 | % |
|
| 4.4 | % |
|
| 2.4 | % |
|
| 1.6 | % |
Dividend yield |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 | June 30, 2022 | February 4, 2022 | ||||||||||||
First stock price trigger | $ | 13.50 | $ | 13.50 | $ | 13.50 | ||||||||
Second stock price trigger | $ | 15.50 | $ | 15.50 | $ | 15.50 | ||||||||
Stock price | $ | 0.68 | $ | 4.50 | $ | 6.53 | ||||||||
Volatility | 79.0% | 68.0% | 64.0% | |||||||||||
Term (in years) | 2.34 | 2.59 | 3.00 | |||||||||||
Risk-free rate | 4.2% | 3.0% | 1.6% | |||||||||||
Dividend yield | 0.0% | 0.0% | 0.0% |
The volatility input was calculated using a weighted average of historical volatilities from select benchmark companies. The term input represents the maximum contractual term, though the shares may be released from escrow earlier. The interest rate input is the U.S. Treasury constant maturity rate for the instrument that most closely matches the term input.
27
Stockholder Earn-Out Rights Derivative Liability
The stockholder earn-out rights were valued using a binomial lattice modelMonte Carlo simulation and the following Level 3 inputs:
| March 31, 2023 |
|
| December 31, 2022 |
|
| March 31, 2022 |
|
| February 4, 2022 |
| |||||
First stock price trigger |
| $ | 13.50 |
|
| $ | 13.50 |
|
| $ | 13.50 |
|
| $ | 13.50 |
|
Second stock price trigger |
| $ | 15.50 |
|
| $ | 15.50 |
|
| $ | 15.50 |
|
| $ | 15.50 |
|
First revenue trigger |
| $ | 65,000 |
|
| $ | 65,000 |
|
| $ | 65,000 |
|
| $ | 65,000 |
|
Second revenue trigger |
| $ | 101,000 |
|
| $ | 101,000 |
|
| $ | 101,000 |
|
| $ | 101,000 |
|
Stock price |
| $ | 0.40 |
|
| $ | 0.65 |
|
| $ | 8.28 |
|
| $ | 6.53 |
|
Base year revenue assumption |
| $ | 44,000 |
|
| $ | 48,000 |
|
| $ | 55,500 |
|
| $ | 55,500 |
|
Volatility |
|
| 87.5 | % |
|
| 86.0 | % |
|
| 63.0 | % |
|
| 64.0 | % |
Term (in years) |
|
| 1.84 |
|
|
| 2.09 |
|
|
| 2.85 |
|
|
| 3.00 |
|
Risk-free rate |
|
| 4.1 | % |
|
| 4.4 | % |
|
| 2.4 | % |
|
| 1.6 | % |
Dividend yield |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 | June 30, 2022 | February 4, 2022 | ||||||||||||
First stock price trigger | $ | 13.50 | $ | 13.50 | $ | 13.50 | ||||||||
Second stock price trigger | $ | 15.50 | $ | 15.50 | $ | 15.50 | ||||||||
First revenue trigger | $ | 65,000 | $ | 65,000 | $ | 65,000 | ||||||||
Second revenue trigger | $ | 101,000 | $ | 101,000 | $ | 101,000 | ||||||||
Stock price | $ | 0.68 | $ | 4.50 | $ | 6.53 | ||||||||
2022 Revenue assumption | $ | 47,500 | $ | 49,500 | $ | 55,500 | ||||||||
Volatility | 79.0% | 68.0% | 64.0% | |||||||||||
Term (in years) | 2.34 | 2.59 | 3.00 | |||||||||||
Risk-free rate | 4.2% | 3.0% | 1.6% | |||||||||||
Dividend yield | 0.0% | 0.0% | 0.0% |
28
Item 2.7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussiondiscussion and Analysis (“MD&A”)analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed consolidatedour audited financial statements and the notes related notes. The MD&A is intended to assistthereto which are included in understanding our financial condition“Part I. Item 1. Financial Statements” of this Quarterly Report on Form 10-Q. Certain information contained in the discussion and results of operations. This discussion containsanalysis set forth below includes forward-looking statements that involve risks and uncertainties.statements. Our actual results couldmay differ materially from those anticipated due to variousin these forward-looking statements as a result of many factors, discussedincluding those set forth under “Risk Factors”“Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K and “Cautionary Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
Leafly is a leading online cannabis discovery marketplace and resource for cannabis consumers. Leafly provides an information resource platform with a deep library of content, including detailed information about cannabis strains, retailers and current events.cannabis products. We are a trusted destination to discover legal cannabis products and order them from licensed retailers with offerings that include subscription-based products and digital advertising. Legacy Leafly was founded in 2010 and is headquartered in Seattle with 259194 total employees with 184 in the U.S. and 10 in Canada as of September 30, 2022.
Leafly allows each shopper to tailor their journey, selecting the store, brand, and cannabis form-factor that appeals to them. Once that shopper builds a basket and is ready to order, our non-plant-touching business model sends that order reservation to the store for payment and fulfillment. By matching stores and shoppers, we deliver value to all constituencies. We monetize our platform primarily through the sale of subscription packages, bundling e-commerce software and advertising solutions, as well as non-subscription-based advertising to retailers and brands. Through the participation on our platform, retailers and brands can reach and engage the millions of monthly average monthly active users ("MAUs"(“MAUs”) on our platform, one of the largest cannabis-focused audiences in the world.
Significant Events
Reductions in some cases, froze their advertising spend. In addition, we saw a continuation of customer account churn in our less mature markets, which we first observed late in the first quarter. Force
In light of the current macroeconomic environment, we are taking a more conservative view of the final quarter of the year and are takinghave taken steps to manage the business accordingly. We have implemented plans to reduce operating expenses, including an announced headcount reductionreductions:
We anticipate these and other changes inwe made to our cost structure in 2022 and 2023 will save a total of approximately $16,000$24,000 in cash costs annually once(beginning in the second quarter of 2023), now that all of the restructuring and other cost savings initiatives are fully implemented. These cost reductions are not expected to have a significant impact on the scope of our business. We will focus on maximizing efficiencies across all areas, investing in projects and products that we expect will result in the highest returns.
29
Key Metrics
In addition to the measures presented in our condensed consolidated financial statements, our management regularly monitors certain metrics in the operation of our business:
Monthly active users
MAUs represents the total unique visitors to Leafly websites and native apps each month, which in turn represents the maximum potential unique visitors that could become a customercustomers of a dispensarydispensaries or brandbrands listed on Leafly’s platform, within a given month. Leafly’s revenue model for dispensaries and brands is based, in part, on the number of visitors it can drive to dispensary or brand listings on the platform. Providing more visitors, as represented by MAUs, may lead to increased advertising rates for both dispensaries and brands.
Due to third-party technological limitations, user software settings, or user behavior, Google Analytics may assign a unique cookie to different instances of access by the same individual to our websites. In such instances, Google Analytics would count different instances of access by the same individual as separate unique users. Accordingly, reliance on the number of unique users counted by Google Analytics may overstate the actual number of unique users who access our websites during the period. Additionally, we cannot differentiate between a user who accesses Leafly across both the web and a native app, which could overstate the number of unique users.
A growing number of MAUs is indicative of our overall product health as it is the result of metrics reflecting both retention and acquisition of customers of our suppliers. While we consider MAUs to be a leading indicator of general product health representing the blend of new customer acquisition and the retention of returning customers, we also acknowledge that this must be paired with a deeper analysis of MAU behavioral metrics. We measure the quality of experience by looking at MAU cohorts engagement behaviors as measured by time on site,time-on-site, interaction with personalization features such as favoriting and following, and orders placed.
Ending retail accounts is the number of paying retailer accounts with Leafly as of the last month of the respective period. Retail accounts can include more than one retailer. This metric is helpful because it represents a portion of the volume element of our revenue and provides an indication of our market share.
Retailer average revenue per account
Retailer ARPA is calculated as monthly retail revenue, on an account basis, divided by the number of retail accounts that were active during that same month. An active account is one that had an active paying subscription with Leafly in the month. Leafly does not provide retailers with an ongoing free subscription offering but may offer a free introductory period with certain subscriptions. This metric is helpful because it represents the price element of our revenue.
30
Results of Operations
Key Metrics
The tablestable below presents these measures for the respective periods:
| Three Months Ended March 31, |
| |||||||||||||
| 2023 |
|
| 2022 |
|
| Change |
|
| Change (%) |
| ||||
Key Operating Metrics: |
|
|
|
|
|
|
|
|
|
|
| ||||
Average MAUs (in thousands)1 |
| 8,085 |
|
|
| 7,749 |
|
|
| 336 |
|
|
| 4 | % |
Ending retail accounts2 |
| 5,702 |
|
|
| 5,422 |
|
|
| 280 |
|
|
| 5 | % |
Retailer ARPA3 | $ | 553 |
|
| $ | 576 |
|
| $ | (23 | ) |
|
| -4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | 2022 | 2021 | Change | Change (%) | ||||||||||||||||||||||
Average Monthly Active Users ("MAUs") (in thousands)1 | 8,187 | 9,433 | (1,246) | (13) | % | |||||||||||||||||||||
Ending retail accounts2 | 5,637 | 4,769 | 868 | 18 | % | |||||||||||||||||||||
Retailer average revenue per account ("ARPA")3 | $ | 556 | $ | 621 | $ | (65) | (10) | % |
MAUs increased 4% for the three months ended September 30, 2022 and 2021, respectively, for a decrease of $68 or 11%.
Nine Months Ended September 30, | 2022 | 2021 | Change | Change (%) | ||||||||||||||||||||||
Average Monthly Active Users ("MAUs") (in thousands)1 | 7,940 | 10,451 | (2,511) | (24) | % | |||||||||||||||||||||
Ending retail accounts2 | 5,637 | 4,769 | 868 | 18 | % | |||||||||||||||||||||
Retailer average revenue per account ("ARPA")3 | $ | 570 | $ | 649 | $ | (79) | (12) | % |
Revenue
We generate our revenue through the sale of online advertising and online order reservation enablement on the Leafly platform for suppliers in our ResultsRetail and Brands segments. Within our Retail segment, we monetize our multi-sided retail marketplace through monthly subscriptions that enable retailers to advertise to and acquire potential shoppers. Our solutions allow retailers, where legally permissible, to accept online orders from shoppers, who visit Leafly.com or use a Leafly-powered online order reservation solution, including our iOS app. Within our Brands segment, our revenue is derived by creating custom advertising campaigns for both small and large brands that target Leafly’s broad and diverse audience and offering brands profile listings on our platform, which are sold on a monthly recurring subscription or annual basis. Advertising opportunities include on-site digital display, native placements, email, branded content, and off-site audience extension. Leafly’s advertising partners span a variety of Operations
Three Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) | ||||||||||||||||||||||
Retail | $ | 9,042 | $ | 8,606 | $ | 436 | 5 | % | ||||||||||||||||||
Brands | 2,739 | 2,290 | 449 | 20 | % | |||||||||||||||||||||
Total revenue | $ | 11,781 | $ | 10,896 | $ | 885 | 8 | % |
| Three Months Ended March 31, |
| |||||||||||||
| 2023 |
|
| 2022 |
|
| Change ($) |
|
| Change (%) |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
| ||||
Retail | $ | 9,470 |
|
| $ | 9,179 |
|
| $ | 291 |
|
|
| 3 | % |
Brands |
| 1,779 |
|
|
| 2,241 |
|
|
| (462 | ) |
|
| -21 | % |
Total revenue | $ | 11,249 |
|
| $ | 11,420 |
|
| $ | (171 | ) |
|
| -1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Nine Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) | ||||||||||||||||||||||
Retail | $ | 27,286 | $ | 24,572 | $ | 2,714 | 11 | % | ||||||||||||||||||
Brands | 7,965 | 6,387 | 1,578 | 25 | % | |||||||||||||||||||||
Total revenue | $ | 35,251 | $ | 30,959 | $ | 4,292 | 14 | % |
Retail revenue from digital media display ads from licensed dispensaries increased $424 and subscriptions revenue increased $491 and decreased $20$208, respectively, contributing to the overall increase in retail revenue for the three months ended September 30, 2022 and increased $1,873 and $757, respectively, for the nine months ended September 30, 2022.March 31, 2023. Digital media display ads revenue growth was driven by increased volumes of display ads sold. The subscriptions revenue decline in the current quarter was driven by lower prices, reflecting turnover among accounts with higher ARPA combined with the acquisition of accounts with lower ARPA. For the nine-month periodthree months ended September 30, 2022,March 31, 2023, the increasedecrease in retail subscription revenue was primarily driven by higher volume, reflected in an 18%customer churn. Our overall growth strategy contributed to a 5% increase in the number of ending retail accounts, offsetaccounts.
31
Ending retail account growth in part by the price dynamics just discussed.
Brands
Macro challenges have put overall pressure on the cannabis industry, particularly in our brand advertising business. For the three months ended September 30, 2022,March 31, 2023, Brands revenue increaseddecreased $462, mostly in Canada, due primarily to:
•revenue of $49 from newly offered licensing of data for use in brands advertising.
Cost of revenue
Three Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) | ||||||||||||||||||||||
Retail | $ | 1,063 | $ | 862 | $ | 201 | 23 | % | ||||||||||||||||||
Brands | 452 | 399 | 53 | 13 | % | |||||||||||||||||||||
Total cost of revenue | $ | 1,515 | $ | 1,261 | $ | 254 | 20 | % |
Nine Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) | ||||||||||||||||||||||
Retail | $ | 3,093 | $ | 2,233 | $ | 860 | 39 | % | ||||||||||||||||||
Brands | 1,318 | 1,331 | (13) | (1) | % | |||||||||||||||||||||
Total cost of revenue | $ | 4,411 | $ | 3,564 | $ | 847 | 24 | % |
| Three Months Ended March 31, |
| |||||||||||||
| 2023 |
|
| 2022 |
|
| Change ($) |
|
| Change (%) |
| ||||
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
| ||||
Retail | $ | 1,080 |
|
| $ | 1,040 |
|
| $ | 40 |
|
|
| 4 | % |
Brands |
| 266 |
|
|
| 415 |
|
|
| (149 | ) |
|
| -36 | % |
Total cost of sales | $ | 1,346 |
|
| $ | 1,455 |
|
| $ | (109 | ) |
|
| -7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
32
Retail
Brands
Brands cost of revenue decreased for the ninethree months ended September 30, 2022,March 31, 2023, primarily reflecting a decrease of $346$100 in costs of audience extension,display advertising, corresponding to decreased associated revenue. Partially offsetting this decrease were $147 higher business platform costsrevenue, and $68 higher$22 lower website infrastructure costs, as described under Retail cost of revenue above, as these costs are shared across both of our segments. Brands cost of revenue also increased $86decreased $25 for the ninethree months ended September 30, 2022,March 31, 2023, due to increasedreduced headcount costs, generally.
Operating expenses
Three Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) | ||||||||||||||||||||||
Sales and marketing | $ | 6,403 | $ | 4,999 | $ | 1,404 | 28 | % | ||||||||||||||||||
Product development | 3,406 | 3,522 | (116) | (3) | % | |||||||||||||||||||||
General and administrative | 6,489 | 4,949 | 1,540 | 31 | % | |||||||||||||||||||||
Total operating expenses | $ | 16,298 | $ | 13,470 | $ | 2,828 | 21 | % |
| Three Months Ended March 31, |
| |||||||||||||
| 2023 |
|
| 2022 |
|
| Change ($) |
|
| Change (%) |
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing | $ | 4,911 |
|
| $ | 7,014 |
|
| $ | (2,103 | ) |
|
| -30 | % |
Product development |
| 3,280 |
|
|
| 3,465 |
|
|
| (185 | ) |
|
| -5 | % |
General and administrative |
| 6,660 |
|
|
| 6,931 |
|
|
| (271 | ) |
|
| -4 | % |
Total operating expenses | $ | 14,851 |
|
| $ | 17,410 |
|
| $ | (2,559 | ) |
|
| -15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) | ||||||||||||||||||||||
Sales and marketing | $ | 21,529 | $ | 13,148 | $ | 8,381 | 64 | % | ||||||||||||||||||
Product development | 10,927 | 9,905 | 1,022 | 10 | % | |||||||||||||||||||||
General and administrative | 20,730 | 10,485 | 10,245 | 98 | % | |||||||||||||||||||||
Total operating expenses | $ | 53,186 | $ | 33,538 | $ | 19,648 | 59 | % |
Sales and marketing expenses grew as we made additional investments in this area of our business following increased funding through the issuance of the 2022 Notes, with cost temperamentdeclined beginning in the third quarter of 2022 as we began to implement the cost reduction activities described under "- Business Overview"“Significant Events” above. We (decreased) increasedreduced advertising and marketing spending by $(508) and $1,848$1,051 and employee compensation costs by $1,734 and $5,652,$751, when comparing
Product development expenses behaved similarly to sales and marketing expenses, growing with additional funding and beginningalso began to slow as we implemented cost reduction activities.activities and reprioritized our development efforts. Professional services fees included within product development grew $258 and $1,064declined $359 for the three and nine months ended September 30, 2022, respectively,March 31, 2023 largely related to the reduction in use of outsourced providers, for staff augmentation.partially offset by an increase in depreciation and amortization of $163. Also within product development are increases in headcount costs generally offset by capitalized product development costs in 2022. Headcount costs prior to capitalization increaseddecreased approximately $311 and $1,825$237 for the three and nine months ended September 30, 2022, respectively.March 31, 2023 when compared to the same period in 2022. Product development expenses are reported net of $755$535 and $2,081$758 of costs capitalized to internal-use software for the three and nine months ended September 30,March 31, 2023 and 2022, respectively. No amounts were capitalized in 2021. See Note 6 to our condensed consolidated financial statements within this Quarterly Report for more information.
General and administrative expenses increaseddecreased $271 for the three and nine months ended September 30, 2022, respectively,March 31, 2023 due primarily to:
33
Other Income and reduced our hiring during the third quarter of 2022; andExpense
| Three Months Ended March 31, |
| |||||||||||||
| 2023 |
|
| 2022 |
|
| Change ($) |
|
| Change (%) 1 |
| ||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net | $ | (713 | ) |
| $ | (697 | ) |
| $ | (16 | ) |
|
| 2 | % |
Change in fair value of derivatives |
| 267 |
|
|
| (10,397 | ) |
|
| 10,664 |
|
| nm |
| |
Other expense, net |
| (3 | ) |
|
| (837 | ) |
|
| 834 |
|
| nm |
| |
Total other income (expense) | $ | (449 | ) |
| $ | (11,931 | ) |
| $ | 11,482 |
|
| nm |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) 1 | ||||||||||||||||||||||
Interest expense, net | $ | (705) | $ | (590) | $ | (115) | 19 | % | ||||||||||||||||||
Change in fair value of derivatives | 22,264 | — | 22,264 | nm | ||||||||||||||||||||||
Other expense, net | (73) | (29) | (44) | nm | ||||||||||||||||||||||
Total other income (expense) | $ | 21,486 | $ | (619) | $ | 22,105 | nm |
Nine Months Ended September 30, | 2022 | 2021 | Change ($) | Change (%) 1 | ||||||||||||||||||||||
Interest expense, net | $ | (2,119) | $ | (698) | $ | (1,421) | 204 | % | ||||||||||||||||||
Change in fair value of derivatives | 36,264 | — | 36,264 | nm | ||||||||||||||||||||||
Other expense, net | (962) | (39) | (923) | nm | ||||||||||||||||||||||
Total other income (expense) | $ | 33,183 | $ | (737) | $ | 33,920 | nm |
1 An "nm" reference means the percentage is not meaningful.
The change in fair value of derivatives is due to the recordingrecognition of derivatives in connection with the Business Combination and changes in their valuations.valuations, which were primarily driven by the decline in Leafly’s stock price between the two periods. See Note 2018 to our condensed consolidated financial statements within this Quarterly Report for details on the valuations and the fair value changes in the periods presented.
Other expense, net increaseddecreased for the ninethree months ended September 30, 2022March 31, 2023 due primarily to $874 of costs incurred in connection with the Business Combination during 2022, which were allocated upon closing of the Business Combination to newly issued derivative liabilities that are recorded at fair value on a recurring basis. See Note 21 to our condensed consolidated financial statements within this Quarterly Report for information on allocation of these costs.
Non-GAAP Financial Measures
Earnings Before Interest, Taxes and Depreciation and Amortization (EBITDA) and Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed EBITDA and Adjusted EBITDA, both of which are non-GAAP financial measures that we calculate as net income (loss)loss before interest, taxes and depreciation and amortization expense in the case of EBITDA and further adjusted to exclude non-cash, unusual and/or infrequent costs in the case of Adjusted EBITDA. Below we have provided a reconciliation of net income (loss)loss (the most directly comparable GAAP financial measure) to EBITDA and from EBITDA to Adjusted EBITDA.
We present EBITDA and Adjusted EBITDA because these metrics are a key measure used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of investment capacity. Accordingly, we believe that EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.
EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you should not consider these in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:
Because of these limitations, you should consider EBITDA and Adjusted EBITDA alongside other financial performance measures, including net income (loss)loss and our other GAAP results.
34
A reconciliation of net income (loss)loss to non-GAAP EBITDA and Adjusted EBITDA follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net income (loss) | $ | 15,454 | $ | (4,454) | $ | 10,837 | $ | (6,880) | |||||||||||||||
Interest expense, net | 705 | 590 | 2,119 | 698 | |||||||||||||||||||
Depreciation and amortization expense | 127 | 57 | 276 | 195 | |||||||||||||||||||
EBITDA | 16,286 | (3,807) | 13,232 | (5,987) | |||||||||||||||||||
Stock-based compensation | 771 | 208 | 3,159 | 729 | |||||||||||||||||||
Transaction expenses allocated to derivatives | — | — | 874 | — | |||||||||||||||||||
Change in fair value of derivatives | (22,264) | — | (36,264) | — | |||||||||||||||||||
Adjusted EBITDA | $ | (5,207) | $ | (3,599) | $ | (18,999) | $ | (5,258) |
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2023 |
|
| 2022 |
| ||
Net loss |
|
| $ | (5,397 | ) |
| $ | (19,376 | ) |
Interest expense, net |
|
|
| 713 |
|
|
| 697 |
|
Depreciation and amortization expense |
|
|
| 195 |
|
|
| 52 |
|
EBITDA |
|
|
| (4,489 | ) |
|
| (18,627 | ) |
Stock-based compensation |
|
|
| 658 |
|
|
| 1,924 |
|
Transaction expenses allocated |
|
|
| — |
|
|
| 874 |
|
Severance costs |
|
|
| 754 |
|
|
| — |
|
Change in fair value of derivatives |
|
|
| (267 | ) |
|
| 10,397 |
|
Adjusted EBITDA |
|
| $ | (3,344 | ) |
| $ | (5,432 | ) |
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The increasedecrease in EBITDA loss is primarily due to the change in fair value of the derivatives for the three and nine months ended September 30, 2022.March 31, 2023 versus the same period in 2022 as well as the result of the cost saving measures described above. See Note 2018 to our condensed consolidated financial statements within this Quarterly Report for more information regarding the fair value of derivatives. The increasedecrease in our loss on an Adjusted EBITDA basis is primarily due to increaseddecreased operating expenses offset in part by increased revenue. See discussionas a result of these changes under the respective headingscost saving measures discussed above.
Financial Condition
Cash, cash equivalents,Cash Equivalents, and restricted cash
Cash, cash equivalents, and restricted cash totaled $28,436$15,563 and $28,695$25,202 as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Explanations of our cash flows for the periods presented follow.
First Quarter 2023
During the first quarter of 2023, the Company utilized a total of $9,639 of cash, primarily to fund cash operating losses of approximately $3,947, to fund changes in current assets and liabilities of $5,269 and for capitalized software costs of $535. The changes in current assets and liabilities during the three months ended March 31, 2023 included primarily reductions in accrued expenses of $1,565 primarily related to the payment 2022 bonuses and accrued interest as well as increases in prepaid expenses and other current assets of $2,460 related to the payment of directors and officers insurance.
First Quarter 2023 Compared to First Quarter 2022
As compared to the ninethree months ended September 30, 2021,March 31, 2022, cash used in operations increaseddecreased by $22,029$4,789 to $25,130$9,216 for the nine-month periodthree months ended September 30, 2022,March 31, 2023, mainly due to increaseddecreased net loss from operations. See discussion under “— Discussion of our Results of Operations” above for more information. Cash used in investing activities increased $2,156decreased $253 to a use of $2,194$535 primarily due to additional investments in property and equipmentlower software capitalization in the current year. Cash and restricted cash provided by financing decreased $4,386$58,599 over this same period to $27,065$112 for the ninethree months ended September 30, 2022,March 31, 2023, mainly due to proceeds from the use of financing proceeds received earlierconvertible promissory notes and the Merger in the year to repurchase common stock in settlement of FPAs in the third quarter of 2022. See Notes 3, 11,1, 12, and 13 to our condensed consolidated financial statements within this Quarterly Report for more information.
Deferred revenue is primarily related to software subscriptions and display ads. The revenue deferred at September 30, 2022March 31, 2023 is expected to be recognized in the subsequent 12-month period. See Note 9 to our condensed consolidated financial statements within this Quarterly Report for further discussion.
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Contractual obligationsObligations and other planned usesOther Planned Uses of capital
We are obligated to repay any convertible notes that do not ultimately convert to equity, as well as the other operating liabilities on our Consolidated Balance Sheets, such as accrued liabilities. We intend to continue to invest in product
Liquidity and feature development, expanding our marketing and sales operations, improving and expanding our technology and finance infrastructure, hiring additional and retaining existing employees, pursuing strategic opportunities, and meeting the increased compliance requirements associated with our transition to and operation as a public company. In addition, we intend to add back in-person working space over time. As we continue to grow, we expect the aggregate amount of these expenses will also continue to grow.
Leafly has incurred operating losses since its inception and had an accumulated deficit of $58,933$70,097 and $69,770$64,700 at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
Under the rules of ASC Subtopic 205-40 “Presentation of Financial Statements — Going Concern” (“ASC 205-40”), reporting companies are required to evaluate whether conditions and/or events raise substantial doubt about their ability to meet their future financial obligations as they become due within one year after the date that the financial statements are issued. This evaluation takes into account a company’s current available cash and projected cash needs over the one-year evaluation period but may not consider things beyond its control. As noted above, we have experienced revenue declines, incurred recurring operating losses, used cash from operations, and relied on the capital raised in the Business Combination to continue ongoing operations. These conditions, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern within one year of the date these financial statements are issued.
After considering all available evidence, we determined that, based on both of our cost reduction measures, our current positive working capital will be sufficient to meet our capital requirements for a period of at least twelve months from the date that our March 31, 2023 financial statements are issued. We believe our restructuring plans alleviate the substantial doubt about our ability to continue as a going concern within one year of the date these financial statements are issued. Management will continue to evaluate our liquidity and capital resources.
Upon the closing of the Business Combination, Leafly issued the 2022 Notes, which provided incremental funding for our operations. Note 11 to our condensed consolidated financial statements within this Quarterly Report provides additional information regarding the 2022 Notes. As discussed in Note 21 and under “— Business Overview
” above, the Company announced a restructuring plan on October 18, 2022, which along with other cost cutting measures, the Company estimates will reduce annual operating costs by approximately $16,000.
Nasdaq Notifications of Noncompliance
On October 28, 2022, we received a notice from the Nasdaq staff informing us that Leafly was not in compliance with the $50 million minimum market value requirement for continued listing on the Nasdaq Global Market (“Global Market”) and that we had until April 26, 2023 to regain compliance. On April 19, 2023, Nasdaq approved the Company’s application to transfer the listing of its common stock and warrants from the Global Market to The Nasdaq Capital Market (“Capital Market”), effective April 21, 2023. The Company complies with the net income from continuing operations listing standard of the Capital Market, and the transfer of the listing resolves the October 28, 2022 noncompliance notification.
On November 2, 2022, we received another letter from the Nasdaq staff informing us that Leafly was not in compliance with the Nasdaq’s $1.00 minimum bid price requirement (“Bid Price Rule”) and that we had until May 1, 2023 to regain compliance. To regain compliance, the closing bid price of Leafly’s common stock must have been $1.00 or more per share for a minimum of ten consecutive business days at any time before May 1, 2023. We were unable to regain compliance with
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the Bid Price Rule by May 1, 2023, and on May 2, 2023, we received a letter from Nasdaq notifying us that our common stock would be subject to delisting from Nasdaq unless we timely requested a hearing before a Nasdaq Hearings Panel (the "Panel"). The Panel has the discretion to grant up to an additional 180 calendar days from May 2, 2023, to give us time to regain compliance with the Bid Price Rule. On May 8, 2023, we timely requested a hearing before the Panel and will present a detailed action plan to comply with the Bid Price Rule by effecting a reverse stock split, if necessary, and request a further extension of time (the “Request”). We understand that the Panel routinely grants additional time for a company to cure a bid price deficiency when the compliance plan demonstrates, like we expect our plan will, that the company will cure a bid price issue through a reverse stock split within 180-days of a delisting notice. The Request stayed any further action by Nasdaq, and while the hearings process is pending, it is expected that the Common Stock will continue to be listed and traded on Nasdaq.
As part of the Company’s plan to regain compliance with the Bid Price Rule within 180 days of May 2, 2023, the Company intends to seek stockholder approval of an amendment to the Company’s Second Amended and Restated Certificate of Incorporation to effect a reverse stock split (the “Reverse Split Proposal”) at the upcoming Annual Meeting of stockholders. The Company expects to file preliminary proxy materials on May 15, 2023, with respect to the Annual Meeting of stockholders, including the approval of the Reverse Split Proposal.
The Company believes it is taking prudent steps to be successful in the Panel hearing and with its Reverse Split Proposal and that it will ultimately be successful in regaining compliance with the Bid Price Rule. However, there can be no assurances that any of these efforts will be successful, and if the Company is unable to regain compliance with the Bid Price Rule, the Common Stock would be subject to delisting from Nasdaq. See “Risk Factors — Our shares of common stock are listed on Nasdaq, but we cannot guarantee that we will be able to satisfy the applicable listing standards going forward.”
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2023.
Contractual Obligations
Other than our 2022 Notes (see Note 1611 to our condensed consolidated financial statements), we do not have any long-term debt, lease obligations or other long-term liabilities. We have entered into several multi-year licensing and administration agreements in the ordinary course of business, the cost of which are reflected within general and administrative expense within our statements within this Quarterly Reportof operations as costs are incurred.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates.
We believe there have been no material changes to the items that we disclosed as our critical accounting estimates under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2022 Annual Report.
Recently Issued and Adopted Accounting Pronouncements
Reference is made to Note 2 for information on the Company's related party relationships and transactions.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Leafly is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information otherwise required with respect to market risk.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15 and 15d-15 under the Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports
Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended September 30, 2022.
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Part II - Other Information
Item 1. LEGAL PROCEEDINGS
We are involved in legal and administrative proceedings and litigation arising in the ordinary course of business. We believe that the potential liability, if any, in excess of amounts already accrued from all proceedings, claims and litigation will not have a material effect on our financial position, cash flows or results of operations when resolved in a future period. There have been no material developments to the legal proceedings reported in ourthe 2022 Annual Report on Form 10-K for the year ended December 31, 2021.
Item 1A. RISK FACTORS
Risk factors that affect our business and financial results are discussed in Part I, Item 1A of our 2022 Annual Report. As of the date of this report, other than the items discussedas set forth below, there have been nowe are not aware of any material changes toin our risk factors from the Risk Factorsrisk factors disclosed in our 2022 Annual Report. You should carefully consider the risks and uncertainties described herein and in our 2022 Annual Report, on Form 10-K forwhich have the year ended December 31, 2021:
Our shares of common stock are listed on Nasdaq, but we cannot guarantee that we will be able to satisfy the continuedapplicable listing standards going forward.
Leafly was unable to regain compliance with the minimum market value price requirementBid Price Rule by April 26,May 1, 2023 and was not eligible under the Company may be eligible to transfer theapplicable Nasdaq listing rules for itsa second 180 calendar day compliance period. Accordingly, on May 2, 2023, we received a letter from Nasdaq notifying it that Leafly’s common stock to the Nasdaq Capital Market. To qualify, the Company would be requiredsubject to meetdelisting from Nasdaq, unless we timely requested a hearing before the continued listing requirements forPanel. The Panel has the Nasdaq Capital Market.
On May 1,8, 2023, we timely requested a hearing before the Company may be eligible for an additional 180 calendar day compliance period, provided that the Company meets the continued listing requirement for market value of publicly held sharesPanel and all other initial listing standards for the Nasdaq Capital Market,will present a detailed action plan to comply with the exception of the minimum bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period,Bid Price Rule by effecting a reverse stock split, if necessary. However, if it appears to Nasdaq’s staffnecessary, and request a further extension of time (the "Request"). We understand that the Company will not be ablePanel routinely grants additional time for a company to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq would notify the Company that its securities would be subject to delisting. In the event of such a notification, the Company may appeal the staff’s determination to delist its securities, but there can be no assurance the staff would grant the Company’s request for continued listing.
As part of listed securities, and will consider options available to itour plan to regain compliance with the Nasdaq listing rules. ThereBid Price Rule within 180 days of May 2, 2023, Leafly intends to seek stockholder approval of an amendment to its Second Amended and Restated Certificate of Incorporation to effect a reverse stock split (the "Reverse Split Proposal") at the upcoming Annual Meeting of stockholders. Leafly expects to file preliminary proxy materials on May 15, 2023, with respect to the Annual Meeting of stockholders, including the approval of the Reverse Split Proposal. We believe we are taking prudent steps to be successful in the Panel hearing and with our Reverse Split Proposal and that we will ultimately be successful in regaining compliance with the Bid Price Rule.
However, there can be no assuranceassurances that the Companyany of these efforts will be ablesuccessful, and if we are unable to regain compliance with the minimum bid price requirement or will otherwiseBid Price Rule, our common stock and warrants would be in compliance with the other listing standards for The Nasdaq Capital Market.
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our share price and liquidity. In addition, without a Nasdaq market listing, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program | Dollar Value of Shares that May Yet Be Purchased Under the Program | ||||||||||
July 1 through 31, 2022 | — | $ | — | — | $ | — | ||||||||
August 1 through 31, 2022 | 3,081,086 | $ | 10.28 | — | $ | — | ||||||||
September 1 through 30, 2022 | — | $ | — | — | $ | — | ||||||||
3,081,086 | $ | 10.28 | — | $ | — |
Item 6. EXHIBITS
The following documents are included as exhibits to this Quarterly Report on Form 10-Q:
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| Amended and Restated Bylaws of Leafly Holdings, Inc., dated February 4, 2022. |
| 8-K |
| 2/4/22 |
| 3.2 |
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101.INS | *** | Inline XBRL Instance Document |
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101.SCH | **** | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL | **** | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB | **** | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | **** | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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101.DEF | **** | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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104 | *** | Cover Page Interactive Data File |
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The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document. | |||||
**** | Submitted electronically herewith | ||||
+ | Management contract or compensation plan or arrangement. |
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 14, 2022.
Leafly Holdings, Inc. | ||
By: | /s/ Yoko Miyashita | |
Yoko Miyashita | ||
Chief Executive Officer | ||
By: | /s/ Suresh Krishnaswamy | |
Suresh Krishnaswamy | ||
Chief Financial Officer |
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