Stockholders' Deficit

9 Months Ended

Sep. 30, 2023

Equity [Abstract]

Stockholders' Deficit

NOTE 12 — Stockholders’ Deficit

Common Stock

Reverse Stock Split

On July 12, 2023, during the Company’s 2023 Annual Meeting of Stockholders, Leafly’s stockholders approved a proposal for a reverse stock split (the “Reverse Stock Split”) as part of the Company’s plan to regain compliance with the Bid Price Requirement under Nasdaq listing rules (Note 8). Effective September 12, 2023, the Company effected a one-for-twenty (1-for-20) Reverse Stock Split of its common stock. As a result of the Reverse Stock Split:

•Every twenty (20) shares of common stock issued and outstanding were combined and converted into one (1) issued and outstanding share of common stock.

oThe Reverse Stock Split did not change the authorized number of shares or the par value of the common stock, nor modify any voting rights of the common stock, which continues to trade on the Nasdaq Capital Market under its existing symbol “LFLY” on a split-adjusted basis.

oAll shares of common stock that were held by a stockholder were aggregated and converted at the 1-for-20 reverse split ratio subsequent to the Reverse Stock Split, and each fractional share held by a stockholder resulting from such aggregation and conversion was rounded up to the next whole share.

oLeafly issued 34 shares in connection with the above criteria. No fractional shares were issued in connection with the Reverse Stock Split.

•The Company’s public warrants continue to trade on the Nasdaq Capital Market under the existing symbol “LFLYW.”

oAll outstanding warrants have been adjusted in accordance with their terms, resulting in the number of shares issuable upon exercise of a warrant holder’s aggregate number of warrants, after adjustment, being rounded up to the nearest whole share and proportionate adjustments were made to the exercise price;

•All outstanding convertible notes have been adjusted such that the conversion rate and the conversion price have been made proportionate with the 1-for-20 reverse split ratio in accordance with their terms.

•Based on the 1-for-20 reverse split ratio, the number of shares of common stock issuable under the Company’s outstanding equity awards decreased proportionately, with any fractional shares rounded down to the nearest whole share, with a corresponding adjustment made to the exercise prices of outstanding option awards, rounded up to the nearest whole cent.

oIn addition, the number of shares of common stock available for issuance under the Company’s equity incentive plans were proportionately adjusted based on the 1-for-20 reverse split ratio, such that fewer shares are available for issuance under our equity incentive plans.

To facilitate comparative analysis, all statements in this Quarterly Report regarding numbers of shares of common stock and all references to prices of a share of common stock, if referencing events or circumstances occurring prior to September 12, 2023, have been retroactively restated to reflect the effect of the Reverse Stock Split on a pro forma basis.

Business Combination

The Consolidated Statements of Changes in Stockholders' Deficit reflect the reverse recapitalization on February 4, 2022, as discussed in Note 1. Since Legacy Leafly was determined to be the accounting acquirer in the Business Combination, all periods presented prior to consummation of the Business Combination reflect the historical activity and balances of Legacy

Leafly (other than common and preferred stock and potentially issuable shares underlying stock options and convertible promissory notes, which have been retroactively restated).

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), approximately 1 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, 2023, Leafly's authorized capital stock consisted of:

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

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

Sponsor Shares Subject to Earn-Out Conditions

In accordance with the Merger Agreement, upon closing of the Business Combination, 81 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”). Of these Escrow Shares, 50% will be released from escrow if and when the Company's common stock trades at or above $270.00 for 20 out of 30 consecutive trading days at any time during the two-year period following closing of the Business Combination, and the remaining 50% will be released from escrow if and when the Company's common stock trades at or above $310.00 for 20 out of 30 consecutive trading days at any time during the three-year period following closing of the Business Combination. In addition, all 81 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 18 for additional information.

Treasury Stock

Effective August 1, 2022, the Company repurchased 154 shares of its common stock at a weighted-average price of $205.60 per share for a total of $31,663, with $31,303 paid with restricted cash held in escrow at the time and $360 remaining in accrued expenses and other current liabilities on our consolidated balance sheet at December 31, 2022. These repurchases were in settlement of the 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 271 shares of common stock (the “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 18 for additional information.

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

First Tranche

Up to 136 shares will be issued if and when:

•revenue for the year ended December 31, 2022 equaled or exceeded $65,000 (“first revenue target”, which was not met), 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 $270.00 (“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 of the Business Combination) (the “first target period”), or

•a change of control occurs within the first target period at the first target price or higher, or

•a pro rata portion of 136 shares (50%) if the revenue during the first target period meets or exceeds 90% of the first revenue target.

Second Tranche

Up to 136 shares will be issued if and when:

•revenue for the year ending December 31, 2023 equals or exceeds $101,000 (“second revenue 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 $310.00 (“second target price”) during the three-year period beginning on the trading day after the closing date of the Business Combination (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 of the Business Combination) (the “second target period”), or

•a change of control occurs within the second target period at the second target price or higher, or

•a pro rata portion of 136 (50%) if the revenue during the second target period meets or exceeds 90% of the second revenue target.

If the second revenue target or second target price 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 Board 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 Board 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 Board 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 Board 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 have any issued and outstanding shares of preferred stock as of September 30, 2023 or December 31, 2022.