•

factors relating to the business, operations and financial performance of the Company and its subsidiaries.

Part I - Financial Information

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~- UNAUDITED~~

(UNAUDITED)

LEAFLY HOLDINGS, INC

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

~~See Notes to Condensed Consolidated Financial Statements.~~

~~LEAFLY HOLDINGS, INC~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED~~

~~(in thousands, except per share amounts)~~

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

~~See Notes to Condensed Consolidated Financial Statements.~~

~~LEAFLY HOLDINGS, INC~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) - UNAUDITED~~

~~(in thousands)~~

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)

~~See Notes to Condensed Consolidated Financial Statements.~~

~~LEAFLY HOLDINGS, INC~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED~~

~~(in thousands)~~

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.

~~NOTES TO CONDENSED~~

LEAFLY HOLDINGS, INC

CONSOLIDATED ~~FINANCIAL~~ STATEMENTS ~~- UNAUDITED~~

OF OPERATIONS

(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.

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 vesting of restricted stock units		—		—		285		—		—			—			—		—			—
Balance at March 31, 2023		—	$	—		43,849	$	4		(3,081	)	$	(31,663	)	$	90,730	$	(70,097	)	$	(11,026	)

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.

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.

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 ~~two~~three 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.

Merger with Merida

On February 4, 2022, Leafly consummated the previously announced ~~Mergers~~mergers 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.

~~The following table provides a summary~~

Table of the significant sources and uses of cash related to the closing of the Business Combination on February 4, 2022 and the cash received from escrow through September 30, 2022:

Contents


~~Amount in Merida's trust account ("the Trust") at closing~~	$	~~90,824~~
~~Total payment to Merida public redeeming stockholders~~	~~49,466~~
~~Amount available after paying Merida redeeming stockholders~~	~~41,358~~
~~Cash to escrow for Forward Share Purchase Agreements (see Note 13)~~	~~39,032~~
~~Remaining balance~~	~~2,326~~
~~Merida expenses paid from the Trust at closing~~	~~1,744~~
~~Net cash from the Trust to Leafly at closing~~	~~582~~
~~Cash received from escrow February 4, 2022 - September 30, 2022~~	~~8,089~~
~~Net cash from the Trust to Leafly as of September 30, 2022~~	$	~~8,671~~

~~The following table provides a reconciliation of the common shares related to the Merger transaction:~~


~~Merida public stockholders~~						~~4,160~~
~~Merida initial stockholders (including Sponsor and EarlyBirdCapital)~~						~~1,667~~
~~Holders of 2022 Notes (see Note 11)~~						38
~~Shares held by Sponsor in escrow that are subject to earn-out conditions (see Note 12)~~						~~1,625~~
~~Total Merida~~						~~7,490~~
~~Legacy Leafly existing securityholders~~						~~35,434~~
~~Total shares outstanding as of February 4, 2022~~						~~42,924~~

~~All shares in this table, except the shares held by Merida public stockholders and Holders of 2022 Notes, were subject to restrictions as to trading through August 3, 2022 ("Lock Up Restrictions").~~

NOTE 2 — Basis of Presentation and Significant Accounting Policies

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, ~~2021~~2022 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, 2022~~29, 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:

•

During the fourth quarter of 2022, Leafly implemented a restructuring plan, including a reduction in force reflecting primarily one-time severance and other employee-related termination benefits incurred during the fourth quarter of 2022.

~~Reclassifications~~•

During the three months ended March 31, 2023, Leafly announced a second restructuring plan further seeking to reduce recurring costs and identifying cost savings based on a reduction in force reflecting primarily one-time severance and other employee-related termination benefits incurred during the first quarter of 2023.

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 ~~reporte~~reported 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.

Emerging Growth Company Status

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 company~~EGC 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 ~~2021~~2022 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, 2022~~March 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.

~~Capitalized Software~~

The Company capitalizes certain costs related to acquisition and development of software for internal use, including internal labor costs incurred during development. The Company begins to capitalize these costs when planning and design efforts are successfully completed and development is ready to commence. Costs incurred during planning and design, together with costs incurred for training and maintenance, are expensed as incurred and recorded in product development expense. The Company places capitalized software assets into service and commences amortization when the asset is substantially complete and ready for its intended use. Once placed into service, the Company capitalizes qualifying costs of specified upgrades or enhancements to the assets when the upgrade or enhancement will result in new or additional functionality.

The Company’s estimated useful life for capitalized software is 3 years, and amortization is calculated using the straight-line method. The Company considers the useful life of capitalized software to be a significant estimate.

~~Transaction Costs~~

The Company incurred significant costs direct and incremental to the Business Combination and therefore to the recapitalization of the Company. We deferred such costs incurred in 2021. In 2022, upon closing of the Business Combination, total direct transaction costs were allocated between equity and liability instruments measured at fair value on a recurring basis that were newly issued in the recapitalization. Amounts allocated to equity were recorded to additional paid-in capital, while amounts allocated to the specified liabilities were recorded as other expense.

Recent Accounting Pronouncements

As a result of the elected JOBS Act relief discussed above, these condensed consolidated financial statements may not be comparable to other companies that do not elect JOBS Act relief or choose to adopt certain accounting pronouncements during a different period than the Company.

~~Recently Adopted Accounting Standards~~

~~None.~~

Accounting Pronouncements Issued But Not Yet Adopted

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.

NOTE 3 — Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash consisted of the following:


	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 $360~~balances 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.

NOTE 4 — Prepaid Expenses and Other ~~Current~~ Assets

Prepaid expenses and other ~~current~~ assets consist of the following:


	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

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

Amounts for the prior period have been reclassified to conform to the current period presentation.

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

1 ~~Calculated based on customer sold to address~~Amounts for the ~~periods presented. Using the~~ prior ~~calculation based on billing entity address, revenue for the United States and All other countries would~~period have been ~~$11,335 and $446 for~~reclassified to conform to the three months ended September 30, 2022, $10,041 and $855 for the three months ended September 30, 2021, $33,491 and $1,760 for the nine months ended September 30, 2022, and $28,204 and $2,755 for the nine months ended September 30, 2021, respectively.current period presentation.

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 %

No other state comprised 10% or more of Leafly’s revenue during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. We have a diversified set of customers; no single customer accounted for 10% or more of our revenue for the three ~~and nine~~ months ended ~~September 30, 2022 and 2021.~~

March 31, 2023 or 2022.

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

Amounts for the prior period have been reclassified to conform to the current period presentation.

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

12.

Revenues from subscription services and display ads.

23.

Revenues from brand profile subscriptions and digital media (including display ads and audience extension).

34.

Revenues from ~~branded content and~~ channel advertising (including direct to consumer email).

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.

The following table presents the Company's deferred revenue ~~accounts~~balances and changes ~~in the deferred revenue accounts~~therein:


	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, 2022~~March 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 or~~March 31, 2023 and December 31, ~~2021.~~2022.

NOTE 10 — Income Taxes

The Company’s effective tax rate was 0%0% for the three ~~and nine~~ months ended ~~September 30, 2022~~March 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, 2022~~March 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 been~~is subject to income tax examinations by major taxing authorities since inception.

~~As a result~~

The Company files income tax returns in the ~~Business Combination, the Company’s~~U.S. federal jurisdiction and various state and foreign ~~net operating loss carryforwards were $53,904, $35,976~~jurisdictions. 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 on~~foreign 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

2022 Notes

Merida entered into a ~~$30,000~~$30,000 convertible note purchase agreement (the “Note Purchase Agreement”) in January 2022, which Legacy Leafly subsequently guaranteed and joined as a party to the agreement on February 4, 2022 in connection with the Business Combination (the “2022 Notes”). Accordingly, post-Business Combination, the 2022 Notes are presented as a liability on Leafly's balance sheet, net of debt issuance costs and debt discount. The Company recognized debt issuance costs of ~~$714~~$714 paid in cash, and a debt discount of ~~$924~~$924 paid in shares transferred by ~~the Sponsor~~Merida Holdings, LLC (the “Sponsor”) to the holders of the 2022 Notes upon issuance. The 2022 Notes bear interest at 8%8% annually, paid in cash semi-annually in arrears on July 31 and January 31 of each year, and mature on January 31, 2025.

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 approach~~the Bloomberg OVCV model and ~~Black-Scholes~~CNVI model ~~both~~which 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

stock then converted to shares of common stock of the combined company using the conversion ratio of 0.3283, which was used for conversion of all ~~Leafy~~Leafly securities.

NOTE 12 — Stockholders’ ~~Equity~~

Deficit

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 Company~~Legacy Leafly was determined to be the accounting acquirer in the ~~transaction,~~Business Combination, all periods presented prior to consummation of the ~~transaction~~Business 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.

In connection with the settlement of the FPAs (
Note 13

), 25 shares of the Company’s common stock held by the Sponsor were canceled, according to an agreement between the Company and the Sponsor entered into upon execution of the FPAs.

As of ~~September 30, 2022~~March 31, 2023 Leafly's authorized capital stock consisted of:

•

200,000 shares of Leafly common stock, ~~$0.0001~~$0.0001 par value per share; and

•

5,000 shares of Leafly preferred stock, ~~$0.0001~~$0.0001 par value per share.

~~Voting Rights~~

The holders of Leafly common stock exclusively possess all stockholder voting power with respect to Leafly, except as otherwise required by law or the Company's charter. Holders of Leafly common stock are entitled to one vote per share on each matter properly submitted to a vote of stockholders. The holders of Leafly common stock will at all times vote together as one class on all matters submitted to a vote of stockholders, unless otherwise required by Delaware law or the charter. If Leafly has multiple classes of common stock in the future, then Delaware law could require holders of shares of a class of capital stock to vote separately as a single class in the following circumstances:

•if we were to seek to amend the charter to increase or decrease the par value of a class of the capital stock, then that class would be required to vote separately to approve the proposed amendment; and

•if we were to seek to amend the charter in a manner that alters or changes the powers, preferences, or special rights of a class of capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.

~~Election of Directors~~

The charter provides for a classified board of directors that is divided into three classes with staggered three-year terms. Only the directors in one class are subject to election by a plurality of the votes cast at each annual meeting of stockholders, with the directors in the other classes continuing for the remainder of their respective three-year terms. The charter does not provide for cumulative voting for the election of directors.

~~Dividend Rights~~

Subject to the rights, if any, of the holders of any outstanding series of the Leafly preferred stock, the holders of Leafly common stock are entitled to receive dividends and other distributions (payable in cash, property or capital stock of Leafly) when, as and if declared by the Leafly board of directors out of any assets or funds legally available and will share equally on a per share basis in such dividends and distributions.

~~No Preemptive or Similar Rights~~

~~Leafly common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.~~

~~Liquidation, Dissolution and Winding Up~~

In the event of any voluntary or involuntary liquidation, dissolution or winding-up, after payment or provision for payment of the debts and other liabilities of Leafly, the holders of Leafly common stock will be entitled to receive all the remaining

assets of Leafly available for distribution to its stockholders, ratably in proportion to the number of shares of the Leafly common stock held by them, subject to the rights, if any, of the holders of any outstanding shares of Leafly preferred stock.

Sponsor Shares Subject to Earn-Out Conditions

In accordance with the Merger Agreement, upon closing of the Business Combination, 1,625 of the shares of the Company’s common stock held by the Sponsor were placed in escrow and subjected to earn-out conditions ("(“Escrow ~~Shares"~~Shares”). Of these Escrow Shares, ~~50%~~50% will be released from escrow if and when the Company's common stock trades at or above ~~$13.50~~$13.50 for 20 out of 30 consecutive trading days at any time during the two-year period following closing, and the remaining ~~50%~~50% will be released from escrow if and when the Company's common stock trades at or above ~~$15.50~~$15.50 for 20 out of 30 consecutive trading days at any time during the three-year period following closing. In addition, all 1,625 Escrow Shares will be released upon a change in control.

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.

~~Lock Up Restrictions~~

In accordance with various legal documents, the majority of our Common Stock was subject to restrictions on trading through August 3, 2022. See Note 1 for detail on Common Stock previously subject to Lock Up Restrictions.

Treasury Stock

Effective August 1, 2022, the Company repurchased 3,081 shares of its common stock at a weighted-average price of ~~$10.28~~$10.28 per share for a total of ~~$31,663,~~$31,663, with ~~$31,303~~$31,303 paid with restricted cash held in escrow at the time and ~~$360~~$360 remaining in accrued expenses and other current liabilities on our consolidated balance ~~sheet~~sheets at ~~September 30,~~March 31, 2023 and December 31, 2022. These repurchases were in settlement of the ~~Forward Purchase Agreements.~~FPAs. See Notes 3 and 13 for additional information.

Stockholder Earn-Out Rights

Leafly stockholders, as of immediately prior to the closing of the Business Combination, were granted upon closing of the Business Combination, contingent rights to receive up to 5,429 shares of common stock (the ~~"Rights"~~“Rights”) if the Company achieves certain earn-out conditions prior to the third anniversary of the Business Combination. We will account for the Rights as derivative liabilities, which we will remeasure to their current fair value as of the end of each reporting period, with changes in the fair value recorded to earnings. See Note 2018 for additional information.

The Rights will be earned and shares of common stock will be issued as follows:

First Tranche

Up to 2,715 shares will be issued if and when:

•

revenue for the year ~~ending~~ended December 31, 2022 ~~equals~~equaled or ~~exceeds $65,000 (first~~exceeded $65,000 (“first revenue ~~target)~~target”), or

•

the date on which the volume-weighted average price of common stock for a period of at least 20 days out of 30 consecutive trading days ending on the trading day immediately prior to the date of determination is greater than or equal to ~~$13.50~~$13.50 (“first target price”) during the two-year period beginning on the trading day after the closing date of the Merger (as adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combinations, exchanges of shares or other like changes or transactions with respect to shares of common stock occurring at or after the ~~Closing)~~closing of the Business Combination) (the “first target period”), or

•

a change of control occurs within the two years after the closing date of the Business Combination at the first target price or higher, or

•

a pro rata portion of 2,715 shares ~~(50%~~(50%) if the revenue during the target period meets or exceeds ~~90%~~90% of the first revenue target.

Second Tranche

Up to 2,715 shares will be issued if and when:

•

revenue for the year ending December 31, 2023 equals or exceeds ~~$101,000 (second~~$101,000 (“second revenue ~~target)~~target”), or

•

~~(as~~ (as adjusted for stock splits, reverse stock splits, stock dividends, reorganizations, recapitalizations, reclassifications, combinations, exchanges of shares or other like changes or transactions with respect to shares of common stock occurring at or after the ~~Closing)~~closing of the Business Combination) (the “second target period”), or

•

a change of control occurs within the three years after the closing date of the Business Combination at the second target price or higher, or

•

a pro rata portion of 2,715 ~~(50%~~ (50%) if the revenue during the second target period meets or exceeds ~~90%~~90% of the second revenue target.

If the second revenue target or second target price ~~target~~ is met in full, the respective first revenue target or first target price, as applicable, will be deemed to have been met as well if it had not been met during the first target period.

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 ~~not~~not have any issued and outstanding shares of preferred stock as of ~~September 30,~~March 31, 2023 or December 31, 2022.

NOTE 13 — Warrants and Forward Share Purchase Agreements

Public Warrants

As of both ~~September 30, 2022~~March 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 become~~became 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.

Once the warrants become exercisable, the Company may redeem the Public Warrants:

•

in whole and not in part;

•

at a price of ~~$0.01~~$0.01 per warrant;

•

upon not less than 30 days’ prior written notice of redemption;

•

if, and only if, the reported last sale price of the Company’s common stock equals or exceeds ~~$18.00~~$18.00 per share for any 20 trading days within a ~~30-trading~~30-trading day period commencing after the warrants become exercisable and ending on the third business day prior to the notice of redemption to the warrant holders; and

•~~If,~~

if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants.

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.

Private Warrants

As of both ~~September 30, 2022~~March 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 ~~warrants~~Private Warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the ~~warrants~~Private 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.~~

Private Warrants.

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

In December 2021 and January 2022, the Company entered into four separate FPAs with certain investors. The FPAs allowed the investors to sell and transfer common stock held by the investors, not to exceed a total of 4,000 shares in aggregate, to the Company in exchange for cash. The price to be paid by the Company was initially ~~$10.16~~$10.16 per share for up to 2,600 shares and ~~$10.01~~$10.01 per share for up to 1,400 shares. As required by the FPAs, ~~$39,032~~$39,032 of cash was placed into escrow upon closing of the Business Combination, to be used for the share purchases. If the FPAs were not exercised by the holders within their terms of three months post-Business Combination closing, the associated funds were to be released from escrow to the Company. We account for the FPAs as derivative liabilities, remeasured to fair value on a recurring basis, with changes in the fair value recorded to earnings.

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 months~~year 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, LLC~~the Sponsor were canceled, according to an agreement between the Company and ~~Merida Holdings, LLC~~the Sponsor entered into upon execution of the FPAs.

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 Out~~Earn-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

2021 Plan are detailed below. There were no options or other equity awards granted under the 2018 Plan or the Earn-Out Plan during the three ~~and nine~~ months ended ~~September 30, 2022.~~

March 31, 2023.

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).

Effective January 1, 2023, 4,416 shares of common stock were available for issuance under 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 ~~101~~102 shares of common stock at ana weighted-average exercise price of ~~$1.98~~$1.98 per share and granted ~~1,228~~an 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.~~

Leafly’s compensation committee approved the vesting of
137

PSUs awarded in 2022, which vested based on the achievement of the Company’s 2022 Adjusted EBITDA target, on March 13, 2023.

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 assumptions~~No options were ~~used as inputs to~~granted under the ~~pricing model for options granted~~2021 Plan during the three ~~and nine~~ months ended ~~September 30, 2022:~~

March 31, 2023 or 2022.


~~Risk-free interest rate~~	~~4.1~~	%
~~Expected term in years~~	~~4.06~~
~~Expected volatility~~	~~74.6~~	%
~~Expected dividend yield~~	~~0.0~~	%

Stock option activity under the 2021 Plan for the three months ended ~~September 30, 2022 (there were no stock options granted previously under this plan)~~March 31, 2023 was as follows:


	Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
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
— $ — $ — —

As of ~~September 30, 2022,~~March 31, 2023, there was ~~$114~~$83 of total unrecognized compensation cost related to stock options granted under the 2021 Plan. That cost is expected to be recognized over a weighted-average period of ~~3.36~~2.86 years. ~~The weighted-average grant date fair value of options granted under the 2021 Plan for the three~~

Restricted Stock Units and ~~nine months ended September 30, 2022 was $1.16 per share.~~

Performance Stock Units

~~Restricted stock unit~~RSU and PSU activity under the 2021 Plan for the three months ended ~~September 30, 2022 (there were no restricted stock units granted previously under this plan)~~March 31, 2023 was as follows:


	Number of Shares			Weighted Average Grant Date Fair Value		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 units~~RSUs and $24 total unrecognized compensation cost related to market-based PSUs granted under the 2021 Plan. ~~That~~The total cost is expected to be recognized over a weighted-average period of ~~3.34~~2.57 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 outstanding~~then-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.

In May 2021, the Company’s board of directors granted stock options under the 2018 Plan to purchase an aggregate of approximately 2,191 shares of common stock at an exercise price of $1.10 per share.

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 assumptions were used as inputs to the pricing model for options granted during the nine months ended September 30, 2021 (there~~There were no grants made in ~~2022):~~

2023 or 2022 under the 2018 Plan.


~~Risk-free interest rate~~	~~1.0~~	%
~~Expected term in years~~	~~5.90~~
~~Expected volatility~~	~~61.2~~	%
~~Expected dividend yield~~	~~0.0~~	%

Stock option activity under the 2018 Plan for the ~~quarterly~~ periods ~~ended September 30, 2022~~presented was as follows:

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 Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
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

11.

Includes 1,929 ~~Includes 2,478, 0,~~ and 1,056 of awards accounted for as service-based ~~performance-based,~~ and market-based options, respectively, that are vested, that the Company currently deems probable of vesting, or in the case of market-based options, that the Company is expensing so long as the respective service conditions are met. The ~~performance options vest only if gross revenue equals or exceeds certain thresholds for the years ending December 31, 2022 and 2023, while the~~ market-based options will vest only if the price of the Company's common stock reaches a ~~$1,000,000~~$1 billion market capitalization target for any 20 days during a ~~30-day~~30-day period on or before ~~the fourth anniversary of the closing of the Merger.~~February 4, 2026.

As of ~~September 30, 2022,~~March 31, 2023, there was: (i) ~~$1,219~~$611 of unrecognized compensation cost related to service-based 2018 Plan option awards, which is expected to be recognized over a remaining weighted-average service period of approximately ~~2.13~~1.96 years; and (ii) ~~$1,687~~$1,136 of unrecognized compensation cost related to market-based 2018 Plan option awards, which is expected to be recognized over a remaining weighted-average service period of approximately ~~1.55~~1.05 years.

Stock-Based Compensation Expense

The following ~~tables~~table 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

~~Earn Out~~

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

to our Chief Executive Officer to purchase 2,917 shares of common stock were modified, and a corresponding charge of $1,366 was recorded during the three months ended March 31, 2022 to general and administrative expenses and additional paid-in capital.

Earn-Out Plan

The ~~Earn Out~~Earn-Out Plan became effective immediately upon closing of the Business Combination. Pursuant to the ~~Earn Out~~Earn-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 Out~~Earn-Out Plan as of ~~September 30, 2022.~~

~~Option Modification~~

Concurrent with the closing of the Business Combination, the vesting provisions of certain stock options previously granted in 2021 to our Chief Executive Officer to purchase 2,917 shares of common stock were modified, and a corresponding charge of $1,366 was recorded for the three months ended March 31, ~~2022 to general and administrative expenses and additional paid-in capital. The original award included the following vesting provisions:~~

•2023.~~Liquidity Event Option~~

: 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.

•~~Milestone Option~~: A stock option to purchase 1,458 shares of common stock will vest one-third each upon the achievement of the three annual revenue targets of $75,000, $150,000 and $300,000, provided the recipient remains in continuous service.

~~The modified vesting provisions are as follows:~~

•~~Liquidity Event Option~~: A stock option to purchase 1,458 shares of common stock will vest as follows, provided the recipient remains in continuous service: 50% upon the closing of the Business Combination and 50% upon the earlier of (i) the Company's achievement of a $1,000,000 market capitalization for any 20 during a 30-day period on or before the fourth anniversary of the closing of the Business Combination (the "Market Cap Milestone") or (ii) a change in control.

•~~Milestone Option: A stock option to purchase 1,458 shares of common stock will vest upon the achievement of the following milestones, provided that the recipient remains in continuous service:~~

◦~~First Milestone~~: 50% of the total number of shares subject to the stock option will vest if the Company's gross revenue for the year ending December 31, 2022 equals or exceeds $65,000. A pro rata amount vests in the event that the Company's gross revenue equals or exceeds 90% of the revenue target.

◦~~Second Milestone~~: 50% of the total number of shares subject to the stock option will vest if the Company's gross revenue for the year ending December 31, 2023 equals or exceeds $101,000. A pro rata amount vests in the event that the Company's gross revenue equals or exceeds 90% of the revenue target.

◦~~In the event the Second Milestone is achieved, any unvested portion of the stock option subject to the First Milestone will fully vest.~~

◦~~In the event the Market Cap Milestone is achieved, any unvested portion of the Milestone Option will fully vest.~~

◦The date of vesting for the Milestone Option will be the earlier of (i) the date following the Company's filing with the SEC of its Form 10-K for the applicable fiscal year in which the applicable revenue target was attained or, (ii) the date of the Market Cap Milestone is achieved.

◦~~All shares subject to the Milestone Option will vest immediately upon a change in control.~~

◦The Milestone Option will remain outstanding unless and until the last possible time that the Second Milestone can be achieved, the Market Cap Milestone can be achieved, or a change in control may occur during the term of the Milestone Option award, subject to the recipient's continued service.

~~NOTE 15 —~~ Employee Stock Purchase Plan

The ~~2021 Employee Stock Purchase Plan (the “ESPP”)~~ESPP became effective immediately upon closing of the ~~Merger.~~Business Combination. Pursuant to the ESPP, 1,126 shares of common stock are initially reserved for issuance. During the term of the ESPP, 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) ~~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 ~~September~~March 16, ~~2022~~2023 through ~~March~~September 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

One of Leafly's significant investors, Brendan Kennedy, is a member of the board of directors of Tilray, Inc., which is the parent company of High Park Holdings Ltd., a customer of Leafly, and has therefore been identified as a related party. During the three months ended September 30, 2022 and 2021, the Company recorded approximately $— and $11, respectively, of revenue earned from contracts with this customer, and during the nine months ended September 30, 2022 and 2021, the Company recorded approximately $— and $125, respectively, of revenue earned from contracts with this customer.

In June 2021 ~~Mr. Kennedy,~~Merida Capital, an affiliate of Merida, purchased a convertible promissory note totaling ~~$1,000.~~$1,000. The note was issued as part of the existing series of 2021 Notes (see Note ~~11)~~11) and was subject to the same interest rate, maturity, and conversion terms. This note converted to shares of Leafly common stock upon closing of the Business Combination in February 2022, along with the other 2021 Notes.

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~~

The Company recognized expense from matching contributions to the Company-sponsored defined contribution retirement (401k) plan of $225 and $159 for the three months ended September 30, 2022 and 2021, respectively, and $684 and $528 for the nine months ended September 30, 2022 and 2021, respectively.

~~NOTE 18~~16 — Net ~~Income (Loss)~~Loss Per Share

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 ~~5,429~~1,625 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.

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,

convertible notes, and other securities outstanding. Certain securities are antidilutive and as such, are excluded from the calculation of diluted earnings per share and disclosed separately. Because of the nature of the calculation, particular securities may be dilutive in some periods and anti-dilutive in other periods. The Class 1, 2, and 3 common shares presented below have been retroactively restated for all periods using the conversion ratio in connection with the Business Combination.

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)

The following shares of common stock subject to certain instruments were excluded from the computation of diluted net income per share attributable to common stockholders for the periods presented as their effect would have been antidilutive (with figures recast using the conversion ratio for the Business Combination, as applicable):


	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

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.

NOTE 2018 — Fair Value Measurements

The Company follows the guidance in ASC 820, ~~"Fair~~“Fair Value Measurement,"” for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).

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.

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
Gain (Loss) Three Months Ended September 30, 20221
Gain (Loss) Nine Months Ended September 30, 20221
Private Warrants derivative liability 3 $ 662 $ 3,693 $ 3,916 $ 3,031 $ 3,254
Forward share purchase agreements derivative liability 2
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 Value of Derivatives
Description	Level		March 31, 2023		December 31, 2022		March 31, 2022		February 4, 2022		Three Months Ended March 31, 2023		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	)

11. ~~Totals may not foot due to rounding.~~

2The forward share purchase agreements were settled effective August 1, 2022, at which time the fair value was ~~$13,824~~$13,824 based on cash settlement.

Assumptions used to determine the fair values are presented in the following sections:

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.

Forward Share Purchase Agreements Derivative Liability

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%

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 underlying the FPAs ~~may be~~were in some cases sold by the holders into the open market earlier ~~which in some cases they have been~~ (see Note ~~13)~~13). The interest rate input is the U.S. Treasury constant maturity rate for the instrument that most closely matches the term input.

Escrow Shares Derivative Liability

The Escrow Shares derivative liability was calculated using a ~~binomial lattice model~~Monte 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.

Stockholder Earn-Out Rights Derivative Liability

The stockholder earn-out rights were valued using a ~~binomial lattice model~~Monte 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%

The revenue assumption input relates to projected revenue for fiscal year 2022 (for the periods ended March 31, 2022 and February 4, 2022) and fiscal year 2023 (for the periods ended December 31, 2022 and March 31, 2023) and represents the midpoint of revenue guidance the Company had provided in the respective period. 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 stockholder earn-out rights may vest earlier. The interest rate input is the U.S. Treasury constant maturity rate for the instrument that most closely matches the term input.

NOTE ~~21 -~~19 — Subsequent ~~Events~~

~~Issuance of Restricted Stock Units~~

Event

~~On October 6, 2022, the Company awarded 512,203 restricted stock units to employees and members of its board of directors, and 819,721 performance stock units to employees.~~

~~Restructuring Plan~~

On October 18, 2022, the Company committed to a restructuring plan (the “Restructuring Plan”), which is intended to support its strategic plan in an effort to improve operating performance and ensure that the Company is appropriately structured and resourced to deliver sustainable value to its customers and shareholders. Key activities under the Restructuring Plan include a focus on efficiency and cost-saving efforts, which includes decreasing, through attrition and layoffs, total headcount by approximately 56 employees upon the completion of the Restructuring Plan. These activities are expected to be substantially completed by the end of 2022.

The Company currently estimates it will incur cash pre-tax restructuring charges of approximately $500, primarily in the fourth quarter of 2022, as a result of the Restructuring Plan, comprised primarily of one-time severance and other employee-related termination benefits. Estimated amounts are subject to change until finalized.

Nasdaq ~~Notifications~~Notification of Noncompliance

On ~~October 28, 2022,~~May 2, 2023, the Company received a letter from ~~the staff (the “Staff”) of The~~ Nasdaq ~~Stock Market LLC (“Nasdaq”) providing notification~~notifying it 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 November 2, 2022, Leafly received another letter from the Nasdaq staff providing notification that, for the previous 30 consecutive business days, the bid price for Leafly’s common stock ~~had closed below~~would be subject to delisting from Nasdaq unless the ~~$1.00~~Company 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 the Company time to regain compliance with the $1.00 per share minimum bid price requirement for continued listing under Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Rule”) (Note 8). On May 8, 2023, the Company timely requested a hearing before the Panel. The ~~notices have no immediate effect on~~Request stayed any further action by Nasdaq, and while the ~~listing of~~hearings process is pending, it is expected that the ~~Company’s common stock or warrants, and its common stock and warrants~~Common Stock will continue to ~~trade~~be listed and traded on ~~The Nasdaq Global Market under the symbol “LFLY” and “LFLYW,” respectively.~~Nasdaq.

~~The notification~~

Table of noncompliance has no immediate effect on the listing or trading of the Company’s common stock on the Nasdaq Global Market. In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been provided an

Contents

initial period of 180 calendar days, or until April 26, 2023, to regain compliance with the minimum bid price requirement. To regain compliance, the market value of the Company’s common stock must be $50 million or more for a minimum of 10 consecutive business days at any time before April 26, 2023 and we must otherwise satisfy the Nasdaq Global Market’s requirements for continued listing. 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 is not able to achieve compliance with an applicable listing standard under Listing Rule 5450(b) prior to April 26, 2023, the Company may be eligible to transfer the listing for its common stock to the Nasdaq Capital Market. To qualify, the Company would be required to meet the continued listing requirements for the Nasdaq Capital Market.

If the Company does not regain compliance with the minimum bid price requirement by May 1, 2023, the Company may be eligible for an additional 180 calendar day compliance period. To qualify, the Company would need to transfer the listing of its common stock to the Nasdaq Capital Market, provided that it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, 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, by effecting a reverse stock split, if necessary. However, if it appears to the Staff that the Company will not be able 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.

Item 2.7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following ~~Management’s Discussion~~discussion and ~~Analysis (“MD&A”)~~analysis of the Company’s financial condition and results of operations should be read in conjunction with ~~the condensed consolidated~~our audited financial statements and the notes related ~~notes. The MD&A is intended to assist~~thereto 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 contains~~analysis set forth below includes forward-looking ~~statements that involve risks and uncertainties.~~statements. Our actual results ~~could~~may differ materially from those anticipated ~~due to various~~in these forward-looking statements as a result of many factors, ~~discussed~~including 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.~~

for the year ended December 31, 2022 (the “2022 Annual Report”).

Amounts in this section are presented in thousands, except for per share numbers and percentages.

~~Merger with Merida~~

On February 4, 2022, Leafly consummated the Business Combination pursuant to the Merger Agreement and became a public company. While the legal acquirer in the Business Combination was Merida, for financial accounting and reporting purposes under U.S. GAAP, Leafly is the accounting acquirer with the Business Combination 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 Leafly. Under this method, Merida is treated as the “~~acquired” company and Leafly is the accounting acquirer with the transaction treated as a recapitalization of Leafly.~~

Accordingly, the consolidated assets, liabilities, and results of operations of Leafly became the historical financial statements, with Merida’s assets, liabilities and results of operations consolidated with Leafly’s beginning on the Business Combination date. Except for certain derivative liabilities (which were measured at fair value), 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. Operations prior to the closing of the Business Combination presented for comparative purposes below are those of Leafly.

Business Overview

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 ~~259~~194 total employees with 184 in the U.S. and 10 in Canada as of ~~September 30, 2022.~~

March 31, 2023. The number of employees at March 31, 2023 does not reflect the impact of the reduction in force that was announced on March 16, 2023 discussed below.

Leafly is one of the cannabis industry’s leading marketplaces for brands and retailers to reach one of the largest audiences of consumers interested in cannabis. Our platform includes educational information, strains data, and ~~news,~~lifestyle content, enabling consumers to use Leafly’s content library to have an informed shopping experience. Leafly reduces the friction caused by fragmented regulation of cannabis across North America and offers a compliant digital marketplace that connects cannabis consumers with legal and licensed retailers and brands nearest them.

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.

During the second quarter and continuing into the third quarter, we began to see some macro-economic impacts on the business. Our retailer, brands, and multi state operator customers signaled that their advertising budgets are under scrutiny and,

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 taking~~have taken steps to manage the business accordingly. We ~~have~~ implemented plans to reduce operating expenses, including an announced headcount ~~reduction~~reductions:

•

on October 18, 2022 of 56 employees, or approximately 21% of our ~~workforce.~~workforce at the time. We ~~expect to incur non-recurring~~incurred cash charges of ~~approximately $500~~$492 associated with the headcount reductions during the fourth quarter of 2022.

•

on March 16, 2023 of approximately 40 employees, or approximately 21% of our workforce at the time. We incurred cash charges of $754 associated with the headcount reductions during the first quarter of 2023.

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.

~~Merger and Public Company Costs~~

~~As a consequence~~

Table of the Business Combination, Leafly became the successor to an SEC-registered and Nasdaq-listed company which requires Leafly to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. Leafly has incurred, and expects to continue to incur, additional expenses as a public company for, among other things: additional directors’ and officers’ liability insurance; compensation for directors and additional internal and external accounting, legal, and administrative resources, including increased audit and legal fees; and costs of certain related software tools.

Direct costs of the Business Combination and resulting recapitalization have been recorded to additional paid-in capital and other expense, as appropriate (see Note 2 to our condensed consolidated financial statements within this Quarterly Report), while general costs associated with becoming and operating as a public company have been expensed throughout operating expenses within our Consolidated Statements of Operations, as applicable, primarily to general and administrative. We currently anticipate we will incur approximately $8,500 to $9,500 annually in incremental cash costs of operating as a public company. This estimate does not reflect general increases in costs due to growing our business. Non-cash stock-based compensation expenses may also increase significantly as we transition to operating as a public company, leveraging our available equity, including derivatives thereof, to fund operations. These estimates and expectations may change as we begin to experience these new conditions.

Contents

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~~

~~Monthly active users (“MAUs”)~~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 customer~~customers of ~~a dispensary~~dispensaries or ~~brand~~brands 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.

Users (visitors) are considered active by initiating a session on at least one webpage or app. Each month’s ~~MAUs is~~MAU tally represents the total number of unique visitors to Leafly during the specified month and includes both new visitors as well as those returning from the previous month. We count a unique user the first time an individual accesses one of our websites or native apps during a calendar month. If an individual accesses our websites using different web browsers within a given month, the first access by each such web browser is counted as a separate unique user. If an individual accesses more than one of our websites or native apps in a single month, the first access to each website or app is counted as a separate unique user since unique users are tracked separately for each domain and native app. The unique visitors are measured using Google Analytics for our web applications and Firebase for our native applications.

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~~

Retail Accounts

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~~

Average Revenue Per Account (“ARPA”)

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.

Results of Operations

Key Metrics

The ~~tables~~table 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) %

1Calculated as a simple average for the period presented. Using the prior calculation that excluded native apps, Average MAUs would have been 7,510 and 8,754 for the three months ended September 30, 2022 and 2021, respectively, for a decrease of 1,244, or 14%.

22.

Represents the amount outstanding inon the last day of the month of the respective period.

33.

Calculated as a simple average of monthly retailer ARPA for the period presented. ~~Using the prior calculation of retailer ARPA which included retail revenue on a product basis, retailer ARPA would have been $551 and $619~~

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) %

1 Calculated as a simple average for the period presented. Using the prior calculation that excluded native apps, Average MAUs would have been 7,266 and 9,700 for the nine months ended September 30, 2022 and 2021, respectively, for a decrease of 2,434, or 25%.

2 ~~Represents the amount outstanding in the last month of the respective period.~~

3 Calculated as a simple average of monthly retailer ARPA for the period presented. Using the prior calculation of retailer ARPA which included retail revenue on a product basis, retailer ARPA would have been $567 and $645 for the nine months ended September 30, 2022 and 2021, respectively for a decrease of $78 or 12%.

~~MAUs decreased 13% and 24% for the three and nine months ended September 30, 2022~~March 31, 2023 compared to ~~the same periods in 2021~~2022, due to ~~people not shopping online at the same pace as they did during the pandemic, along with a decline~~an increase in ~~organic search traffic (in particular, our~~ news and learn sections). The 13% decline for the three months ended September 30, 2022 represents a slowing rate of decline in Average MAUs and shows a sequential improvement over the decline witnessed in the second quarter of this year. The Company continuestraffic. We continued to focus primarily on growing the number of ~~supply~~retail partners on ~~the~~our platform, leading to ~~an 18%~~5% growth in ~~year over year~~year-over-year ending retail accounts. ~~Part~~Declining pricing across some of ~~this growth~~Leafly’s advertising products in ~~retail accounts included expanding into lower penetration~~major markets ~~at a lower price point, a strategic decision which~~ contributed to a ~~10% and 12%~~4% decline in ARPA for the three ~~and nine~~ months ended ~~September 30, 2022, respectively.~~

~~Discussion~~March 31, 2023 when compared to the same period in 2022.

Revenue

We generate our revenue through the sale of online advertising and online order reservation enablement on the Leafly platform for suppliers in our ~~Results~~Retail 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~~

~~Revenue~~

verticals including hardware and accessories, THC-infused products, hemp, CBD, and seed.

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~~

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 period~~three months ended ~~September 30, 2022,~~March 31, 2023, the ~~increase~~decrease 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, offset~~accounts.

Ending retail account growth in ~~part by the price dynamics just discussed.~~

~~The Company's continued focus on adding ending retail accounts, with~~2023 reflects favorable impacts from several developing market states (typically at a ~~reduction in prices in target markets, reflects~~lower ARPA) as well as a strategic pricing decision to attract a greater number of local retailers onto our platform. ~~In 2022, we continued use~~Both of these drivers contributed to a ~~regional pricing model based on traffic and orders, which had the effect of decreasing overall prices within our mix of revenue during 2022 when compared to 2021, as reflected in a 10% and 12%~~4% decrease in ARPA for the three ~~and nine~~ months ended ~~September 30, 2022, respectively.~~

March 31, 2023.

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 ~~increased~~decreased $462, mostly in Canada, due primarily to:

•

direct-to-consumer marketing revenue ~~increase~~decrease of ~~$193;~~$233;

•~~digital media~~

reduction in display ads ~~(including audience extension services) revenue increase~~ of ~~$99;~~$163; and

•~~subscriptions revenue increase~~

branded content decrease of ~~$78; and~~$80.

•~~revenue of $49 from newly offered licensing of data for use in brands advertising.~~

~~For the nine months ended September 30, 2022, Brands revenue increased due primarily to:~~

•~~direct-to-consumer marketing revenue increase of $510;~~

•~~subscriptions revenue increase of $286;~~

•~~digital media display ads (including audience extension services) revenue increase of $304; and~~

•~~revenue of $333 from newly offered licensing of data for use in brands advertising.~~

The Company’s current systems do not allow us to precisely quantify changes in Brands revenue attributable to price and volume. ~~We continue to implement systems and processes that will allow us to do so. In the meantime, the~~The information we

have from our existing systems, combined with our knowledge of changes in list prices, informs the discussion of Brands volume and pricing that follows. We believe Brands revenue ~~grew primarily~~declined due to ~~increased volume. We offer a solution for brands that continue to lack access to their target audience through certain traditional~~decreased volume and reduced advertising ~~channels that do not work with the cannabis industry, and as CBD and related cannabis-adjacent brands want to advertise to~~spend per ad from our ~~audience.~~

clients.

Cost of ~~revenue~~

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	%

Retail

Retail cost of revenue increased due primarily to ~~a $74 and $479~~$107 increase in business platform and merchant processing costs, ~~primarily data licensing fees,~~ for the ~~three and nine months~~period ended ~~September 30, 2022, respectively, and due to $47 and $170 higher~~March 31, 2023, partially offset by reductions in website infrastructure costs ~~primarily hosting fees, respectively. Retail cost~~ of ~~revenue also increased $79~~$37 and ~~$200 for the three and nine months ended September 30, 2022, respectively, due to increased~~ headcount costs ~~generally.~~

~~Brands~~

~~Brands cost~~ of revenue increased across nearly all components when comparing the three months ended September 30, 2022 to the prior year. Partially offsetting these increases was a decrease of $55 in costs of audience extension services, corresponding to decreased associated revenue.

$30.

Brands

Brands cost of revenue decreased for the ~~nine~~three 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 costs~~revenue, 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 $86~~decreased $25 for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, due to ~~increased~~reduced headcount ~~costs, generally.~~

costs.

Operating ~~expenses~~

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 temperament~~declined 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) increased~~reduced advertising and marketing spending by ~~$(508) and $1,848~~$1,051 and employee compensation costs by ~~$1,734 and $5,652,~~$751, when comparing

the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023 to the same ~~periods~~period in ~~2021. We increased our number of~~2022. The Company reduced its sales and marketing ~~staff by approximately 75% and 50%, respectively, when comparing these periods.~~

spend in response to slowing conditions, but believes it is still positioned to respond efficiently to growth opportunities.

Product development expenses ~~behaved similarly to sales and marketing expenses, growing with additional funding and beginning~~also 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 $1,064~~declined $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 ~~increased~~decreased 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 ~~increased~~decreased $271 for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023 due primarily to:

•

a ~~$1,385 and $3,848 increase in insurance costs, primarily related to directors and officers insurance for post-Business Combination coverage;~~

•~~a $275 and $3,079 increase~~$1,640 decrease in compensation costs, including ~~$426 and $2,359 of~~a $1,398 decrease in stock-based compensation ~~expenses, primarily associated with~~expense, which was attributable to the modification of ~~certain options held by our CEO,~~awards in the ~~hiring of several senior-level employees during the fourth~~first quarter of ~~2021, and higher rates of salaries, stock-based compensation, and related benefits and bonuses in general; and~~2022 (Note 14);

•

a ~~$(536) decrease~~$154 reduction in other costs including lower facilities and insurance costs; partially offset by:

•

an $849 increase in bad debts expense due to net recoveries in the prior year period; and

•

a ~~$1,751~~$674 increase in professional services ~~fees, largely~~primarily related to ~~the Business Combination~~audit and ~~becoming a public company, offset by decreased recruiting fees as we generally moved these activities in-house~~consulting fees.

Other Income and ~~reduced our hiring during the third quarter of 2022; and~~Expense


	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

•1.~~a $264 and $732 increase in costs of software.~~

~~Other income and expense~~

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

1An ~~"nm"~~“nm” reference means the percentage is not meaningful.

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.~~

Interest expense ~~net increased due to higher principal balances of convertible promissory notes outstanding, on average,~~ for the three ~~and nine~~ months ended ~~September 30, 2022, respectively, when compared~~March 31, 2023 was similar to that of the same ~~periods~~period in ~~2021.~~

2022.

The change in fair value of derivatives is due to the ~~recording~~recognition 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 ~~increased~~decreased for the ~~nine~~three months ended ~~September 30, 2022~~March 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:

•

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and both EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

•

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; and

•

EBITDA and Adjusted EBITDA do not reflect interest or tax payments that may represent a reduction in cash available to us.

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.

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 to derivatives		—			874
Severance costs		754			—
Change in fair value of derivatives		(267	)		10,397
Adjusted EBITDA	$	(3,344	)	$	(5,432	)

The ~~increase~~decrease 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 ~~increase~~decrease in our loss on an Adjusted EBITDA basis is primarily due to ~~increased~~decreased operating expenses ~~offset in part by increased revenue. See discussion~~as a result of ~~these changes under~~ the ~~respective headings~~cost saving measures discussed above.

Financial Condition

Cash, ~~cash equivalents,~~Cash Equivalents, and ~~restricted cash~~

Restricted Cash

Cash, cash equivalents, and restricted cash totaled ~~$28,436~~$15,563 and ~~$28,695~~$25,202 as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Explanations of our cash flows for the periods presented follow.

Cash ~~flows~~

Flows

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 ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, cash used in operations ~~increased~~decreased by ~~$22,029~~$4,789 to ~~$25,130~~$9,216 for the ~~nine-month period~~three months ended ~~September 30, 2022,~~March 31, 2023, mainly due to ~~increased~~decreased net loss from operations. See discussion under “— ~~Discussion of our~~ Results of Operations” above for more information. Cash used in investing activities ~~increased $2,156~~decreased $253 to a use of ~~$2,194~~$535 primarily due to ~~additional investments in property and equipment~~lower 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 ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, mainly due to proceeds from the ~~use of financing proceeds received earlier~~convertible 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.

~~Stock and convertible promissory note issuances~~

Since our capital restructuring in 2019, we have financed a sizable portion of our operations from issuances of stock and convertible promissory notes. The proceeds of these issuances have been used to fund, among other things, working capital and capital expenditures. See more information about our stock in Not~~e 12 and our convertible notes in Note 11 to our condensed consolidated financial statements within this Quarterly Report.~~

Deferred ~~revenue~~

Revenue

Deferred revenue is primarily related to software subscriptions and display ads. The revenue deferred at ~~September 30, 2022~~March 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.

Contractual ~~obligations~~Obligations and ~~other planned uses~~Other Planned Uses of ~~capital~~

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.

~~Liquidity~~

Capital Resources

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, 2022~~March 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.

•

During the fourth quarter of the year ended December 31, 2022, we implemented a restructuring plan, including a reduction in force of approximately 56 persons and other cost cutting measures, with an estimated expected annual cash savings of approximately $16,000 beginning in 2023. These cost-cutting measures are expected to allow the Company to prioritize growth opportunities, realign its expense structure, and preserve capital while strengthening its financial position. The cash cost for this initiative was $492 reflecting primarily one-time severance and other employee-related termination benefits incurred during the fourth quarter of 2022.

•

On March 16, 2023, we announced a second restructuring plan further reducing recurring costs and identifying cost savings that we expect to result in an estimated annual cash savings of an additional $8,000 based on an estimated reduction of an additional 40 personnel at a cash cost of $754 recognized in the first quarter of 2023.

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.

We believe that our capital resources are sufficient to fund our operations for at least the following 12 months.

~~Related Party Relationships~~

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

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 Report~~of 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.~~

about recently issued accounting pronouncements.

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

that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this Quarterly Report.

Changes in Internal Control over Financial Reporting

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.~~

March 31, 2023.

Part II - Other Information

Item 1. LEGAL ~~PROCEEDINGS~~

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 ~~our~~the 2022 Annual ~~Report on Form 10-K for the year ended December 31, 2021.~~

Report.

Item 1A. RISK ~~FACTORS~~

FACTORS.

~~Other~~

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 discussed~~as set forth below, ~~there have been no~~we are not aware of any material changes toin our risk factors from the ~~Risk Factors~~risk 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 for~~which have the ~~year ended December 31, 2021:~~

potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner. The risks described herein and in our 2022 Annual Report are not the only risks we face, as there are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial which may in the future adversely affect our business, financial condition and/or operating results.

Our shares of common stock are listed on Nasdaq, but we cannot guarantee that we will be able to satisfy the ~~continued~~applicable listing standards going forward.

~~The~~ Nasdaq ~~Stock Market LLC (“Nasdaq”)~~ requires listed companies to comply with certain standards ~~in order~~ to remain listed. On ~~October 28,~~November 2, 2022, Leafly received a letter from the Nasdaq staff ~~providing notification~~indicating that, ~~for~~based on the ~~previous~~closing bid price of Leafly’s common stock for 30 consecutive business days, Leafly no longer met the ~~minimum market value of Leafly’s listed securities had closed below the $50 million minimum market value~~ requirement for continued listing under Nasdaq Listing Rule 5450(b)(2)(A). This letter notified the Company that it 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 November 2, 2022, Leafly received another letter from the Nasdaq 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 shareto maintain a minimum bid price ~~requirement for continued listing~~of $1.00 per share under Nasdaq Listing Rule 5450(a)(1) (the “Bid Price Rule”). The notices have no immediate effect on the listing of the Company’s common stock, and its common stock and warrants have continued to trade on the Nasdaq Global Market under the symbols “LFLY” and “LFLYW,” respectively.

In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been provided an initial period of 180 calendar days, or until April 26, 2023, to regain compliance with the minimum bid price requirement. To regain compliance, the market value of the Company’s common stock must be $50 million or more for a minimum of 10 consecutive business days at any time before April 26, 2023 and we must otherwise satisfy the Nasdaq Global Market’s requirements for continued listing. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), ~~the Company has been~~Leafly was provided ~~an initial period of~~ 180 calendar days, or until May 1, 2023, to regain compliance with the ~~minimum bid price requirement.~~Bid Price Rule. To regain compliance, the closing bid price of ~~the Company’s~~Leafly’s common stock must behave been $1.00 or more per share ~~or more~~ for a minimum of 10ten consecutive business days at any time before May 1, ~~2023 and we must otherwise satisfy the Nasdaq Global Market’s requirements for continued listing.~~

2023.

~~If the Company does not~~

Leafly was unable to regain compliance with the ~~minimum market value price requirement~~Bid Price Rule by ~~April 26,~~May 1, 2023 and was not eligible under the ~~Company may be eligible to transfer the~~applicable Nasdaq listing rules for ~~its~~a 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 ~~required~~subject to ~~meet~~delisting from Nasdaq, unless we timely requested a hearing before the ~~continued listing requirements for~~Panel. The Panel has the ~~Nasdaq Capital Market.~~

~~If the Company does not~~discretion to grant Leafly up to an additional 180 calendar days from May 2, 2023, to regain compliance with the ~~minimum bid price requirement by~~Bid Price Rule.

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 shares~~Panel 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 staff~~necessary, and request a further extension of time (the "Request"). We understand that the ~~Company will not be able~~Panel 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.~~

~~The Company intends to actively monitor the~~ 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 ~~its~~a delisting notice. The Request stayed any further action by Nasdaq, and while the hearings process is pending, it is expected that our common stock will continue to be listed and ~~its market value~~traded on Nasdaq.

As part of ~~listed securities, and will consider options available to it~~our plan to regain compliance with the ~~Nasdaq listing rules. There~~Bid 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 ~~assurance~~assurances that ~~the Company~~any of these efforts will be ~~able~~successful, and if we are unable to regain compliance with the ~~minimum bid price requirement or will otherwise~~Bid Price Rule, our common stock and warrants would be ~~in compliance with the other listing standards for The Nasdaq Capital Market.~~

subject to delisting from Nasdaq. Delisting from the Nasdaq ~~Global~~Capital Market ~~or any Nasdaq market~~ could make trading our common stock more difficult for investors, potentially leading to declines in

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

stock would likely be made more difficult and the trading volume ~~and liquidity~~ of our stock could decline. Delisting from Nasdaq could also result in negative publicity and make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock as ~~currency~~transaction consideration or the value accorded our common stock by other parties. Further, if we are delisted, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. We cannot assure you that our common stock, if delisted from Nasdaq, will be listed on another ~~national~~ securities exchange or quoted on an over-the counter quotation system. If our common stock is delisted, it may come within the definition of “penny stock” as defined in the Exchange Act and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors.

~~If we are unable to execute cost-cutting measures successfully, our total operating costs may be greater than expected, which would adversely affect our profitability.~~

We have implemented plans to reduce operating expenses, including an announced headcount reduction of 56 employees or approximately 21% of our workforce. If we do not achieve expected savings, or our operating costs increase as a result of investments in strategic initiatives, our total operating costs would be greater than anticipated. In addition, if we do not manage our costs properly, such efforts may affect the quality of our products and features and our ability to generate future revenues. Reductions in staff could also adversely affect our ability to attract and retain key employees.

~~Item 2. UNREGISTERED SALES OF INVESTMENT SECURITIES AND USE OF PROCEEDS~~

~~Issuer Purchases of Equity Securities~~

~~The following table presents the number and average price of shares purchased in each fiscal month of the third quarter of 2022:~~

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 — $ —

All of the shares in the table above were repurchased in settlement of the Company's forward share purchase agreements. Please see Note 13 to our condensed consolidated financial statements within this Quarterly Report for more information.

~~Item 4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~Item 5. OTHER INFORMATION~~

~~None.~~

Item 6. ~~EXHIBITS~~

EXHIBITS.

The following documents are included as exhibits to this Quarterly Report on Form 10-Q:


			Incorporated by Reference
Exhibit Number		Exhibit Description	Form	Period Ending	Exhibit	Filing Date

3.1		Second Amended and Restated Certificate of Incorporation of Leafly Holdings, Inc., dated February 4, 2022	10-K	12/31/21	3.1	3/31/22

3.2		Amended and Restated Bylaws of Leafly Holdings, Inc., dated February 4, 2022.	8-K	2/4/22	3.2	2/10/22

31.1	*	Certification of Chief Executive Officer of Leafly pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	*	Certification of Chief Financial Officer of Leafly pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	*	Certifications of Chief Executive Officer and Chief Financial Officer of Leafly pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	***	Inline XBRL Instance Document

101.SCH	****	Inline XBRL Taxonomy Extension Schema Document

101.CAL	****	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	****	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	****	Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF	****	Inline XBRL Taxonomy Extension Definition Linkbase Document

104	***	Cover Page Interactive Data File


~~Exhibit~~ ~~Number~~ *	~~Exhibit Description~~Filed herewith.

~~2.1~~			Agreement and Plan of Merger, dated as of August 9, 2021, by and among Leafly Holdings, Inc., Merida Merger Corp. I, Merida Merger Sub, Inc. and Merida Merger Sub II, LLC (incorporated by reference to Exhibit 2.1 to the Company's Form S-1 filed with the SEC on May 5, 2022).

~~2.2~~			First Amendment to the Agreement and Plan of Merger, dated as of September 8, 2021, by and among Leafly Holdings, Inc., Merida Merger Corp. I, Merida Merger Sub, Inc. and Merida Merger Sub II, LLC (incorporated by reference to Exhibit 2.2 to the Company's Form S-1 filed with the SEC on May 5, 2022).

~~2.3~~			Second Amendment to the Agreement and Plan of Merger, dated as of January 11, 2021, by and among Leafly Holdings, Inc., Merida Merger Corp. I, Merida Merger Sub, Inc. and Merida Merger Sub II, LLC (incorporated by reference to Exhibit 2.3 to the Company's Form S-1 filed with the SEC on May 5, 2022).

~~3.1~~			Second Amended and Restated Certificate of Incorporation of Leafly Holdings, Inc., dated February 4, 2022 (incorporated by reference to Exhibit 3.1 to the Company's Form 10-K filed with the SEC on March 31, 2022).

~~3.2~~			~~Amended and Restated By-Laws of Leafly Holdings, Inc., dated February 4, 2022 (incorporated by reference to Exhibit 3.2 to the Company's Form 8-K filed with the SEC on February 10, 2022).~~

10.1*			~~Form of Performance Stock Unit Award Agreement, Leafly Holdings, Inc. 2021 Equity Incentive Plan~~

10.2*			~~Separation Agreement and General Release between Leafly Holdings, Inc. and Kimberly Boler, dated~~ ~~September 9,~~ ~~2022~~

31.1*			Certification of Chief Executive Officer of Leafly pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*			Certification of Chief Financial Officer of Leafly pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32*			~~Certifications of Chief Executive Officer and Chief Financial Officer of Leafly pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101.INS~~		***	~~Inline XBRL Instance Document~~

~~101.SCH~~		~~****~~	~~Inline XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~		~~****~~	~~Inline XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.LAB~~		~~****~~	~~Inline XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~		~~****~~	~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~

~~101.DEF~~		~~****~~	~~Inline XBRL Taxonomy Extension Definition Linkbase Document~~

~~104~~		~~***~~	~~Cover Page Interactive Data File~~


*		~~Filed herewith.~~
**		~~Furnished herewith.~~
~~***~~		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.

SIGNATURES

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.~~

May 12, 2023.


	Leafly Holdings, Inc.

	By:	/s/ Yoko Miyashita
		Yoko Miyashita
		Chief Executive Officer

	By:	/s/ Suresh Krishnaswamy
		Suresh Krishnaswamy
		Chief Financial Officer

~~/s/ Yoko Miyashita~~

~~By: Yoko Miyashita~~

~~Chief Executive Officer~~

~~Leafly Holdings, Inc.~~

~~/s/ Suresh Krishnaswamy~~

~~By: Suresh Krishnaswamy~~

~~Chief Financial Officer~~

~~Leafly Holdings, Inc.~~


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)

							Page
	Cautionary Note Regarding Forward-Looking Statements	~~Page~~2
Part I	Financial Information	3
Item 1.	Condensed Consolidated Financial Statements (Unaudited) ~~(unaudited)~~	3
				Condensed Consolidated Balance Sheets as of ~~September~~ ~~30, 2022~~March 31, 2023 and December 31, ~~2021 (audited)~~2022 (Audited)	3
	Condensed Consolidated Statements of Operations for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30, 2022~~March 31, 2023 and ~~2021~~2022	4
	Condensed Consolidated Statements of Changes in Stockholders ~~Equity (Deficit)~~Deficit for the Three ~~and~~ ~~Nine~~Months Ended ~~September~~ ~~30, 2022~~March 31, 2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September~~ ~~30, 2022~~March 31, 2023 and ~~2021~~2022	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	2829
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3539
Item 4.	Controls and Procedures	3540
Part II	Other Information
~~Part II~~ Item 1.	~~Other Information~~Legal Proceedings	3740
Item 1.1A.	~~Legal Proceedings~~Risk Factors	3740
~~Item 1A.~~	~~Risk Factors~~			37
~~Item 2.~~			~~Unregistered Sales of Equity Securities and Use of Proceeds~~			38

~~Item 4.~~			~~Mine Safety Disclosures~~			38
~~Item 5.~~			~~Other Information~~			38
Item 6.			Exhibits	3941
~~Signatures~~						39


	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


	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


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	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, 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)


	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


	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


	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)


Description	Level	Fair Value at September 30, 2022		Fair Value at June 30, 2022		Fair Value at February 4, 2022		Gain (Loss) Three Months Ended September 30, 20221		Gain (Loss) Nine Months Ended September 30, 20221
Private Warrants derivative liability	3	$	662	$	3,693	$	3,916	$	3,031	$	3,254
Forward share purchase agreements derivative liability 2	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


	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%


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)	%


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	—	$	—