UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. Interim Condensed Consolidated Financial Statements
PSQ HOLDINGS, INC. (dba PublicSquare)
Condensed Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Loans held for investment, net of allowance for credit losses of $ | ||||||||
| Interest receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Loans held for investment, net of allowance for credit losses of $ | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deposits | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Revolving line of credit | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Total current liabilities | ||||||||
| Convertible promissory notes | ||||||||
| Warrant liabilities | ||||||||
| Earn-out liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 16) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ | ||||||||
| Class A Common stock, $ | ||||||||
| Class C Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
PSQ HOLDINGS, INC. (dba PublicSquare)
Condensed Consolidated Statements of Operations (Unaudited)
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net | $ | $ | ||||||
| Costs and expenses: | ||||||||
| Cost of revenue (exclusive of depreciation and amortization shown separately below) | ||||||||
| Cost of goods sold (exclusive of depreciation and amortization shown separately below) | ||||||||
| General and administrative | ||||||||
| Sales and marketing | ||||||||
| Research and development | ||||||||
| Depreciation and amortization | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Other income | ||||||||
| Change in fair value of convertible promissory notes | ( | ) | ||||||
| Change in fair value of earn-out liabilities | ||||||||
| Change in fair value of warrant liabilities | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Loss before income tax benefit (expense) | ( | ) | ( | ) | ||||
| Income tax benefit (expense) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
PSQ HOLDINGS, INC. (dba PublicSquare)
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
| Preferred Stock | Class A Common Stock | Class C Common Stock | Additional Paid-In | Subscription | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | - | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Issuance of common stock for Credova Merger | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares for consulting arrangement | - | - | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares for fully vested restricted stock units | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | - | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Preferred Stock | Class A Common Stock | Class C Common Stock | Additional Paid-In | Subscription | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Retroactive application of Business Combination | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | ||||||||||||||||||||||||||||||||||||||||
| Receipt of subscription receivable | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for asset acquisition | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | - | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PSQ HOLDINGS, INC. (dba PublicSquare)
Condensed Consolidated Statements of Cash Flows (Unaudited)
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Change in fair value of convertible promissory notes | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Change in fair value of earn-out liabilities | ( | ) | ||||||
| Share based compensation | ||||||||
| Provision for credit losses on loans held for investment | ||||||||
| Origination of loans and leases for resale | ( | ) | ||||||
| Proceeds from sale of loans and leases for resale | ||||||||
| Gain on sale of loans and leases | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Non-cash operating lease expense | ||||||||
| Interest income on loans held for investment | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Inventory | ||||||||
| Deposit | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Operating lease payments | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from Investing Activities | ||||||||
| Software development costs | ( | ) | ( | ) | ||||
| Principal paydowns on loans held for investment | ||||||||
| Disbursements for loans held for investment | ( | ) | ||||||
| Acquisition of businesses, net of cash acquired | ||||||||
| Purchase of intangible assets | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from Financing Activities | ||||||||
| Repayments on revolving line of credit | ( | ) | ||||||
| Proceeds from the issuance of common stock | ||||||||
| Proceeds from issuance of convertible promissory notes | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | $ | ||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental Non-Cash Investing and Financing Activity | ||||||||
| Accrued variable compensation settled with RSU grants | $ | $ | ||||||
| Shares issued in connection with Credova Merger | $ | $ | ||||||
| Note Exchange in connection with Credova Merger | $ | $ | ||||||
| Brand intangible purchase for stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PSQ HOLDINGS, INC. (dba PublicSquare)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Business Operations
PSQ Holdings, Inc. and its subsidiaries, (collectively “PublicSquare”,
“PSQ” or the “Company”) is a holding company that strategically unites key products and services, forming the
backbone of the parallel economy’s ecosystem via its
EveryLife Asset Acquisition
In February 2023, the Company acquired the assets of EveryLife, Inc. (“EveryLife”). On July 13, 2023, the Company launched the brand and began generating revenue from sales of diapers and wipes from this operation. See Note 5 for further information.
Merger Agreement
On July 19, 2023, in accordance with the plan of arrangement to reorganize PSQ Holdings. Inc, the Company finalized a business combination (the “Business Combination”) with Colombier Acquisition Corp. (“Colombier”). On closing, the common shares of PSQ Holdings Inc. were listed on the New York Stock Exchange and commenced trading under the symbol “NYSE:PSQH”. See Note 4 for further information.
Credova Merger
On March 13, 2024, the Company entered into an agreement and plan of merger (the “Credova Merger Agreement”) with Credova Holdings, Inc., a Delaware corporation (“Credova”), and Samuel L. Paul, in the capacity as the Seller Representative in accordance with the terms of the Credova Merger Agreement (“Credova Merger”). See Note 5 for further information.
The Company’s operations are comprised of
Marketplace
The PSQ platform (the “Platform”) can be accessed through two primary means:
| ● | Mobile application - Our mobile app is available for both iOS and Android-based devices. |
| ● | Web - Users can access our full platform at PublicSquare.com. |
Brands
Our brand revenues have been derived primarily from our sale of products. EveryLife is a direct-to-consumer baby care company with a mission to provide premium products to every miraculous life. EveryLife is committed to its core values, ensuring product quality, and demonstrating generosity by donating diapers and wipes to moms in need. This commitment has quickly set EveryLife apart, elevating both its brand and products. Since its launch in July 2023, EveryLife has been delivering high-performing and price-accessible products that align with the values of our consumers.
Financial Technology
Credova assists consumers, lenders, and retailers in offering point-of-sale financing products. Credova has developed and maintains an internet-based proprietary retail finance platform and related application programming interfaces (“APIs”) through which Credova, certain Federal Deposit Insurance Corporation (“FDIC”) and National Credit Union Administration (“NCUA”) insured financial institutions, other financial institutions authorized by Credova (each a “Financing Partner”), and merchants can dynamically offer certain financing products.
Credova’s offerings fall into four main categories: (i) Merchant-originated products; (ii) Bank Partner-originated closed-end installment loans; (iii) Credova-originated loan products; and (iv) Zero-interest installment product (“Pay-in-4”).
5
Note 2 - Liquidity
Historically, the Company’s primary sources
of liquidity have been funds from financing activities. The Company reported net losses of $
On May 3, 2024, the Company received the $
Additionally, the Company's Board of Directors and executive team have outlined a plan to improve the Company's cash position by gaining access to additional capital through various strategic initiatives. These initiatives may include reallocation of resources to more profitable segments of the business, completing a private placement equity raise, entering into a revolving line of credit agreement and refinement of inventory purchase timing which will reduce excess stock levels.
The Company believes that as a result of the Business Combination, convertible note proceeds, Credova Merger, resource reallocation initiatives, planned equity raises, inventory management and line of credit financing, along with its existing cash and cash equivalents, that the Company will be able to fund operations and capital needs for the next year from the date these condensed consolidated financial statements were available to be issued.
The Company’s future capital requirements will depend on many factors including the Company’s revenue growth rate, the timing and extent of spending to support further sales and marketing and research and development efforts. In order to finance these opportunities, the Company may need to raise additional financing. While there can be no assurances, the Company may need to pursue issuances of additional equity raises and debt rounds of financing. If additional financing is required from outside sources, the Company may not be able to raise it on terms acceptable to the Company or at all. If the Company is unable to raise additional capital when desired, the Company’s business, results of operations and financial condition would be materially and adversely affected.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, certain information and footnote disclosures normally included in consolidated financial statements in accordance with U.S. GAAP have been omitted. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
All significant intercompany balances and transactions have been eliminated in consolidation.
6
The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for its year ended December 31, 2023.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Estimates are adjusted to reflect actual experience when necessary. Such estimates include, but are not limited to, revenue recognition, allowance for credit losses, fair values of net assets acquired, intangible assets, inventory valuation, estimates related to useful lives of long lived assets, estimation of contingencies, recoverability of deferred tax assets, the incremental borrowing rate applied to lease accounting, valuation of earn out liabilities and warrant liabilities, and estimation of income taxes. These estimates, judgments, and assumptions are reviewed periodically and the impact of any revisions are reflected in the consolidated financial statements in the period in which such revisions are made. Actual results could differ materially from those estimates, judgments, or assumptions, and such differences could be material to the Company’s consolidated financial position and results of operations.
Earnings (Loss) Per Share
The Company computes basic loss per share (“EPS”) by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the reporting period. All securities that meet the definition of a participating security, irrespective of whether the securities are convertible, nonconvertible, or potential common stock securities, shall be included in the computation of basic EPS using the two-class method. However, when the different classes of units have identical rights and privileges except voting rights, whereby they share equally in dividends and residual net assets on a per unit basis, the classes can be combined and presented as one class for EPS purposes. As such, the Company has combined the Class A and Class C Common stock for purposes of the EPS calculation.
Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when there are anti-dilutive, common stock equivalents, these are not considered in the computation. As of March 31, 2024, the Company’s restricted stock units (“RSUs”) and Warrants were not considered in the computation as they are anti-dilutive. As of March 31, 2024, there were no anti-dilutive shares or common stock equivalents outstanding.
Revenue Recognition
[1] Marketplace Revenues
E-commerce revenues
The Platform features a single cart shopping experience where consumers can purchase a variety of products from multiple vendors in one transaction. The Company is not the seller of record in these transactions. The commissions revenue earned from these arrangements are recognized on a net basis, which equates to the commission and processing fees earned in exchange for the seller marketplace services. The commission and processing fees are recognized net of estimated refunds when the corresponding transaction is confirmed by the buyer and seller. The Company does not take title to inventory sold or assume risk of loss at any point in time during the transaction and is authorized to collect consideration from the buyer and remit net consideration to the seller to facilitate the processing of the confirmed purchase transaction. The Company currently records processing fees from its merchant service providers as a component of Cost of revenues on the condensed consolidated statement of operations.
7
Advertising services
The Company enters into advertising subscription arrangements with its customers. Revenue is recognized over-time as the ads are displayed over the subscription period. The Company is providing a service and the service is being consumed by the customer simultaneously over the period of service. In general, the Company reports advertising revenue on a gross basis, since the Company controls the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory before it is transferred to customers.
The Company also sells push notifications and email blasts and recognizes revenue at a point in time when delivered. Push notifications and email blasts are considered delivered when an ad is displayed to users. When a customer enters into an advertising subscription arrangement that includes push notifications and/or email blasts, the Company allocates a portion of the total consideration to the push notification and email blast performance obligations based on the residual approach.
[2] Brand Sales
Product sales
The Company generates revenue through the sale of diapers and wipes to consumers by way of the Company’s Platform and EveryLife’s website. Additionally, EveryLife provides discounted products to non-profit organizations and other strategic partners through bulk sales at wholesale prices. The Company considers customer orders to be the contracts with the customer. There is a single performance obligation, which is the Company’s promise to transfer its product to customers based on specific payment and shipping terms in the arrangement. The entire transaction price is allocated to this single performance obligation. Product revenue is recognized when a customer obtains control of the product, which occurs at shipment. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products.
The Company evaluated principal versus agent considerations to determine whether it is appropriate to record third-party logistics provider fees paid as an expense. These fees are recorded as shipping and handling expenses within cost of goods sold and are not recorded as a reduction of revenue because the Company owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct the third-party logistics provider to return the Company’s inventories to any location specified by the Company. It is the Company’s responsibility to process any returns made by customers directly to logistic providers and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk (i.e., credit card chargebacks), establishes prices of its products, fulfills the goods to the customer and can limit quantities or stop selling the goods at any time.
Product Returns
Consistent
with industry practice, the Company generally offers customers a limited right of return for products purchased. The Company reviews
its receivables quarterly and records a reserve, if necessary. As of March 31, 2024 and December 31, 2023, the Company had $
8
[3] Financial Technology Revenues
Financing Revenues
The Company principally generates financing revenue from four activities: revenue from sale of loan and lease contracts, revenue from interest earned on loans, and revenue from retailer discounts and origination fees paid by lending institutions (direct revenue) earned in connection with providing financing on consumer goods. Revenue from leases is recognized over time when the Company satisfies a performance obligation based on the agreed upon financing terms. Revenue from the Company’s sales of loans and leases is recognized at a point in time when the Company satisfies a performance obligation by transferring control of the loans to a third party. Interest on loans and leases is calculated by the simple-interest method on daily balances of the principal amount outstanding. Revenue from retailer discounts is recognized at a point in time when the Company satisfies performance obligations by purchasing the contract from the merchant in connection with a merchant-originated consumer financing product. Origination fees from lenders are recognized at the time of loan origination.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. The carrying values of cash and cash equivalents approximate their fair values due to the short-term nature of these instruments. The Company maintains cash accounts with financial institutions. At times, balances in these accounts may exceed federally insured limits. No losses have been incurred to date on any deposits.
Restricted cash
The Company has two Deposit Account Control Agreements (“DACA”) with lenders. With these agreements, the Company assigned the rights to a collateral account to the lenders. The DACA accounts are utilized to collect the consumer payments on loans and leases. Funds are then distributed in accordance with the loan security agreement. Funds cover payments for servicing, interest on revolving loans, and paying down revolving loans.
Loans held for Investment, net
Loans are unsecured and are stated at the amount of unpaid principal. Interest on loans is calculated by the simple-interest method on daily balances of the principal amount outstanding. Accrued interest on loans is discontinued when management believes that, after considering collection efforts and economic and business conditions, the collection of interest is doubtful. The Company’s policy is to stop accruing interest when the loan becomes 120 days’ delinquent.
All interest accrued but not collected for loans that are placed on nonaccrual status or subsequently charged-off is reversed against interest income which is included in revenues, net on the condensed consolidated statements of operations. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic and future principal and interest payments are reasonably assured, in which case the loan is returned to accrual status. The Company classifies its loans as either current or past due. Amounts are considered past due if a scheduled payment is not paid on its due date. The Company does not modify the terms of its existing loans with customers.
9
Allowance for credit losses – Loans held for investment
The Company identifies its portfolio segments and measures the allowance for credit losses based on similar economic risk characteristics. The allowance for credit losses for each portfolio is determined based on the Company’s current estimate of expected credit losses over the remaining contractual term, adjusted for expected prepayments when appropriate, and incorporates evaluations of known and inherent risks in our portfolio, historical credit losses, consumer payment trends, estimates of recoveries, current economic conditions, and reasonable and supportable forecasts. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation.
Business Combinations
The Company evaluates whether acquired net assets should be accounted for as a business combination or an asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, the Company applies its judgement to determine whether the acquired net assets meets the definition of a business by considering if the set includes an acquired input, process, and the ability to create outputs.
The Company accounts for business combinations using the acquisition method when it has obtained control. The Company measures goodwill as the fair value of the consideration transferred including the fair value of any non-controlling interest recognized, less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at their fair value as of the acquisition date. Transaction costs, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
Any contingent consideration (“Earn-out liabilities”) is measured at fair value at the acquisition date. For contingent consideration that does not meet all the criteria for equity classification, such contingent consideration is required to be recorded at their initial fair value at the acquisition date, and on each balance sheet date thereafter. Changes in the estimated fair value of liability-classified contingent consideration are recognized on the condensed consolidated statements of operations in the period of change.
When the initial accounting for a business combination has not been finalized by the end of the reporting period in which the transaction occurs, the Company reports provisional amounts. Provisional amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date. These adjustments, or recognition of additional assets or liabilities, reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
10
Inventory
Inventory consists of finished goods and is stated at lower of cost or net realizable value. Cost is measured by using an adjusted standard cost method which approximates FIFO (first in, first out). The net realizable value of the Company’s inventory is estimated based on current and forecasted demand, and market conditions. The allowance for excess and obsolete inventory requires management to make assumptions and to apply judgment regarding a number of factors, including estimates applying past and projected sales performance to current inventory levels. As of March 31, 2024 and December 31, 2023, no reserve for inventory has been recorded.
Goodwill and acquired intangible assets
Goodwill in the Company’s condensed consolidated financial statements resulted from the Credova Merger, while the acquired intangible assets recorded in the Company’s condensed consolidated financial statements resulted from both the EveryLife asset acquisition and the Credova Merger.
Goodwill represents the excess of the purchase price in a business combination over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized as it is estimated to have an indefinite life. As such, goodwill is subject to an annual impairment test.
The Company allocates goodwill to reporting units based on the expected benefit from the business combination. Reporting units are evaluated when changes in the Company’s operating structure occur, and if necessary, goodwill is reassigned using a relative fair value allocation approach.
Accounting Standards Codification (“ASC”) 350- Intangibles-Goodwill and Other requires goodwill to be tested for impairment at least annually or more frequently if events or changes in circumstances indicate that goodwill may be impaired. The Company elects to perform an annual impairment test of goodwill as of December 31 of each year. The accounting guidance gives the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount. If it is determined, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed.
Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of the respective asset. Each period the Company evaluates the estimated remaining useful lives of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired indefinite-lived intangible assets are not amortized but are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the intangible asset may be impaired.
Capitalized Software
The Company capitalizes costs related to the development
of its internal software and certain projects for internal use in accordance with ASC 350. The Company capitalizes costs to develop its
mobile application and website when preliminary development efforts are successfully completed, management has authorized and committed
project funding, it is probable that the project will be completed, and the software will be used as intended. Costs incurred during the
preliminary planning and evaluation stage of the project and during the post implementation operational stage, including maintenance,
are expensed as incurred. Costs incurred for enhancements that are expected to result in additional functionality are capitalized and
expensed over the estimated useful life of the upgrades on a per project basis. Amortization is computed on an individual product basis
over the estimated economic life of the product using the straight-line method. Software development costs expensed and not capitalized,
which are included in research and development expense in the accompanying condensed consolidated statements of operations, were approximately
$
11
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including intangible assets, capitalized software and lease assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are impaired, an impairment loss would be recognized based on the excess of the carrying amount of the asset above the fair value of the asset. No impairment of the Company’s long-lived assets were recorded during the three months ended March 31, 2024 and 2023.
Convertible Promissory Notes
The Company may enter into convertible promissory notes, some of which contain predominantly fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. In this case, the convertible promissory notes represent a financial instrument other than an outstanding share that embodies a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the convertible notes date with a charge to expense in accordance with ASC-480 – Distinguishing Liabilities from Equity.
Warrant Liabilities
The Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 815-40, Derivatives and Hedging (“ASC 815-40”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company accounts for the Public Warrants (as defined in Note 11) and the Private Placement Warrants (collectively, with the Public Warrants, the “Warrants”) in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each reporting period until exercised, and any change in fair value is recognized in the condensed consolidated statements of operations. The Warrants for periods where no observable traded price was available are valued using a binomial lattice model. For the Public Warrants, quoted market price will be used as the fair value as of each relevant date.
Leases
The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, right-of-use (“ROU”) assets represent the Company’s right to use the underlying asset for the term of the lease and the lease liabilities represent an obligation to make lease payments arising from the lease. The Company’s lease agreement contains rent escalation provisions, which are considered in determining the ROU assets and lease liabilities. The Company begins recognizing rent expense when the lessor makes the underlying asset available for use by the Company. Lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term. The interest rate the Company uses to determine the present value of future lease payments is the Company’s incremental borrowing rate because the rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is a hypothetical rate for collateralized borrowings in economic environments where the leased asset is located based on credit rating factors. The ROU asset is determined based on the lease liability initially established and adjusted for any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. Certain leases contain variable costs, such as common area maintenance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the condensed consolidated statements of operations.
Operating leases are included in the ROU assets and lease liabilities on the condensed consolidated balance sheets. The Company has no finance leases.
12
Share Based Compensation
The Company recognizes an expense for share-based compensation awards based on the estimated fair value of the award on the date of grant. For certain awards, the Company has determined that the service inception date precedes the grant date as (a) the awards were authorized prior to establishing an accounting grant date, (b) the recipients began providing services prior to the grant date, and (c) there are performance conditions that, if not met by the accounting grant date, will result in the forfeiture of the awards. As the service inception date precedes the accounting grant date, the Company recognizes share-based compensation expense over the requisite service period based on the fair value at each reporting date.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset, or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:
| Level 1 | - | Inputs based on unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
| Level 2 | - | Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable or can be corroborated by observable market data. |
| Level 3 | - | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are both unobservable for the asset and liability in the market and significant to the overall fair value measurement. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy based on the inputs used to measure fair value. The recorded amounts of certain financial instruments, including money markets classified as cash equivalents, accounts receivable, loans held for investment at fixed interest rates, accounts payable, accrued expenses, debt at fixed interest rates, and other liabilities approximate fair value due to their relatively short maturities.
The Company’s policy is to record transfers between levels, if any, as of the beginning of the fiscal year. For the three months ended March 31, 2024 and 2023 no transfers between levels have been recognized.
Segment Reporting
Operating segments are defined as components of an entity for which
separate discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”)
in deciding how to allocate resources and in assessing performance. The Company has determined that the Company has
Concentration of Risks
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist primarily of cash and cash equivalents, and accounts receivable. Cash balances may exceed the FDIC
insurance limit of $
For the three months ended March 31, 2024 and
2023, no customer accounted for
As of March 31, 2024 and December 31, 2023, no customer accounted for
13
Recent Accounting Pronouncements
The Company has assessed the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on the Company’s condensed consolidated financial statements as well as material updates to previous assessments, if any, to the Company’s annual audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2023.
Note 4 - Recapitalization
On July 19, 2023, the Company consummated the Business Combination, pursuant to the terms of the Merger Agreement dated February 27, 2023 with Colombier.
At Closing, pursuant to the terms of the Merger
Agreement and after giving effect to the redemptions of Class A Common Stock, par value $
| ● | all options, convertible notes, warrants and other rights to subscribe for or purchase any capital stock of PSQ or securities convertible into or exchangeable for, or that otherwise conferred on the holder any right to acquire, any capital stock of PSQ which remained outstanding and had not been exercised or did not convert automatically into shares of PSQ Common Stock (as defined below) prior to the effective time of the Merger (the “Effective Time”) were cancelled without consideration; |
| ● | each share of PSQ Common Stock, par value $ |
| ● | each share of PSQ Common Stock held by the Chief Executive Officer (“CEO”) was automatically converted into the right to receive |
14
In addition to the right of holders’ of
PSQ Common Stock immediately prior to the Effective Time (the “PSQ Stockholders”) to receive Class A Common Stock or Class
C Common Stock, as applicable, in the Merger, PSQ Stockholders and certain executive officers, employees and service providers of PSQ
(the “Deemed Equity Holders” and, together with the PSQ Stockholders, the “Participating Equity Holders”) will
be entitled to receive up to
| ● | in the event that, and upon the date during the Earnout Period on which, the volume-weighted average trading price of Class A Common Stock quoted on the New York Stock Exchange (“NYSE”) (or such other exchange on which the shares of Class A Common Stock are then listed) for any twenty (20) trading days within any thirty (30) consecutive trading day period (the “Earnout Trading Price”) is greater than or equal to $ |
| ● | in the event that, and upon
the date during the Earnout Period on which, the Earnout Trading Price is greater than or equal to $ |
| ● | in the event that, and upon
the date during the Earnout Period on which, the Earnout Trading Price is greater than or equal to $ |
Each share of the Company’s Class C Common
Stock entitles its holder, initially the CEO, to a number of votes per share (rounded up to the nearest whole number) equal to (a) the
aggregate number of outstanding shares of Class A Common Stock entitled to vote on the applicable matter as of the applicable record
date plus 100, divided by (b) the aggregate number of outstanding shares of Class C Common Stock (the “Per Share Class C Voting
Power”). As of the Closing Date, as a result of his ownership of
PSQ has been determined to be the accounting acquirer based on evaluation of the following facts and circumstances:
| ● | PSQ’s existing stockholders will have the ability to control decisions regarding election and removal of directors and officers of the Company; |
| ● | PSQ is the larger entity in terms of substantive operations and employee base; |
| ● | PSQ will comprise the ongoing operations of the Company; and |
| ● | PSQ’s existing senior management will be the senior management of the Company. |
Accordingly, the Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, although Colombier acquired all the outstanding equity interests of PSQ in the Business Combination, Colombier was treated as the “acquired” company and PSQ was treated as the accounting acquirer for financial statement reporting purposes. Accordingly, the Business Combination was treated as the equivalent of PSQ issuing stock for the net assets of Colombier, accompanied by a recapitalization. The net assets of Colombier were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of PSQ.
15
Transaction Proceeds
Upon closing of the Business Combination, the
Company received gross proceeds of $
| Cash-trust and cash, net of redemptions | $ | |||
| Less: transaction costs and advisory fees, paid | ( | ) | ||
| Net proceeds from the Business Combination | ||||
| Less: public and private placement warrant liabilities | ( | ) | ||
| Less: earn-out liabilities | ( | ) | ||
| Add: amounts paid in advance | ||||
| Add: Transaction costs in accounts payable and accrued expenses | ||||
| Reverse recapitalization, net | $ |
| Colombier Class A common stock, outstanding prior to the Business Combination | ||||
| Less: Redemption of Colombier Class A common stock | ( | ) | ||
| Class A common stock of Colombier | ||||
| Colombier Class B common stock, outstanding prior to the Business Combination | ||||
| Business Combination shares | ||||
| PSQ Shares | ||||
| Common Stock immediately after the Business Combination |
| PSQ Shares | PSQ Shares after conversion ratio |
|||||||
| Class A Common Stock | ||||||||
| Class C Common Stock | ||||||||
| Total | ||||||||
Public and private placement warrants
The Public Warrants issued in Colombier’s Initial Public Offering
(“IPO”) and
Redemption
Prior to the closing of the Business Combination,
certain Colombier public shareholders exercised their right to redeem certain of their outstanding shares for cash, resulting in the redemption
of
16
Note 5 - Acquisitions
Credova
On March 13, 2024, the Company entered into an agreement and plan of merger (the “Credova Merger Agreement”) with Cello Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary (“Merger Sub”) Credova Holdings, Inc., a Delaware corporation (“Credova”), and Samuel L. Paul, in the capacity as the Seller Representative in accordance with the terms of the Credova Merger Agreement (the “Credova Merger”).
Pursuant to the Credova Merger Agreement, on March 13, 2024, the transactions which are the subject of the Credova Merger Agreement were consummated and Merger Sub merged with and into Credova (the “Merger”), with Credova surviving as a wholly-owned subsidiary of PSQ. In connection with the Merger, each share of Credova’s equity was converted into the right to receive newly-issued shares of PSQ Class A common stock (“Class A Common Stock”), and was delivered to the Credova stockholders at the closing (“Credova Stockholders”).
Credova Merger Consideration
As consideration for the Credova Merger, Credova stockholders received
The acquisition of Credova was accounted for as a business combination using the acquisition method pursuant to FASB ASC Topic 805. As the acquirer for accounting purposes, the Company estimated the purchase price, assets acquired and liabilities assumed as of the acquisition date, with the excess of the purchase price over the fair value of net assets acquired recognized as goodwill.
The Company is in the process of finalizing the allocation of the purchase
price. As a result, the fair value estimates assigned to intangible assets, goodwill and the related tax impacts of the acquisition, among
other items, are preliminary and subject to change as additional information is received to complete the analysis, including final adjustments
to loans held for investment, intangible assets, and certain net working capital accounts. The Company expects to finalize the valuation
as soon as practicable, but no later than one year after the acquisition date.
| March 13, 2024 | ||||
| Purchase consideration: | ||||
| Common Stock, at fair value | $ | |||
| Assumption of notes payable | ||||
| Cash paid | ||||
| Total purchase consideration | $ | |||
| Purchase price allocation: | ||||
| Cash | $ | |||
| Loans held for investment | ||||
| Fixed assets | ||||
| Intangible assets | ||||
| Prepaid expenses | ||||
| Goodwill | ||||
| Operating lease right of use asset | ||||
| Accounts payable and other current liabilities | ( | ) | ||
| Lease liability | ( | ) | ||
| Revolving line of credit | ( | ) | ||
| Fair value of net assets acquired | $ | |||
The preliminary excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributed to the synergies expected from expanded market opportunities when integrating the acquired developed technologies with the Company’s offerings as well as acquiring an assembled workforce. The goodwill balance is not deductible for income tax purposes.
17
Acquisition-related costs of $
Since the acquisition date, $
| Fair value | Useful life | |||||||
| Trademarks and Tradenames | $ | |||||||
| Internally developed software | ||||||||
| Merchant relationships | ||||||||
| State operating licenses | ||||||||
| Total intangible assets | $ | |||||||
The following unaudited supplemental pro forma
combined financial information presents the Company’s combined results of operations for the three months ended March 31, 2024 and
2023 as if the Credova Merger had occurred on January 1, 2023. The pro forma financial information is presented for comparative purposes
only and is not necessarily indicative of the Company’s operating results that may have occurred had the Credova Merger been completed
on January 1, 2023.
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Revenue | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
The unaudited pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2023 to give effect to certain events the Company believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:
| (i) | the elimination of Credova historical depreciation and amortization expense and the recognition of new depreciation and amortization expense; |
| (ii) | an adjustment to present acquisition-related transaction costs and other one-time costs directly attributable to the acquisition as if they were incurred in the earliest period presented; and |
| (iii) | the related income tax effects of the adjustments noted above, as applicable. |
EveryLife
In February 2023, the Company acquired the assets of EveryLife, by
way of a stock for stock exchange. Pursuant to that agreement, the Company acquired a brand name in exchange for
This acquisition was accounted for as an asset purchase. The cost of a group of assets acquired in an asset acquisition shall be allocated to the individual assets acquired or liabilities assumed based on their relative fair values and shall not give rise to goodwill.
| Assets acquired: | ||||
| Balance - January 1, 2023 | $ | |||
| Issuance of common stock at fair value | ||||
| Legal costs capitalized | ||||
| Balance – December 31, 2023 | $ | |||
18
Note 6 - Goodwill and Intangible Assets, Net
Goodwill as of March 31, 2024 was $
| Useful Life | March 31, 2024 | December 31, 2023 | ||||||||
| Capitalized software development costs | $ | $ | ||||||||
| Trademark and tradenames | ||||||||||
| Internally developed software | ||||||||||
| Merchant relationships | ||||||||||
| State operating licenses | ||||||||||
| Purchased technology | ||||||||||
| Brand name | ||||||||||
| Total intangible assets | ||||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||||
| Total intangible assets, net | $ | $ | ||||||||
Amortization expenses were approximately $
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ |
Note 7 – Loans Held for Investment, Net
The Company classifies its loans as either current or past due. The following reflects the credit quality of the Company’s loans held for investment, as delinquency status has been identified as the primary credit quality indicator, based on the recorded amount of the receivable in delinquent status.
| Past Due | ||||||||||||||||||||
| Current | 30-59 Days | 60-89 days | > 90 days | Total | ||||||||||||||||
| Loans receivable | $ | $ | $ | $ | $ | |||||||||||||||
| Allowance for credit losses | ( | ) | ||||||||||||||||||
| Loans receivable, net | $ | |||||||||||||||||||
These loans have a variety of lending terms as well as original maturities ranging from six weeks to thirty-six months, with the large majority of the Company’s loans having a term of approximately two years. The average remaining life of the Company’s loans was approximately 12 months as of March 31, 2024. Given that the Company’s loan portfolio focuses on unsecured installment loans, the Company evaluates the portfolio as a single homogeneous loan portfolio, and performs further analysis by product type as needed.
The Company closely monitors credit quality for its loans held for investment to manage and evaluate exposure to credit risk. Credit risk management begins with initial underwriting, where a consumer is assessed based on the Company’s underwriting and credit policy. This includes Know Your Customer (“KYC”) identification, traditional credit scoring models, various Fair Credit Reporting Act (“FCRA”) permissible consumer credit and risk data. Credit quality is monitored subsequent to underwriting based on performance metrics that include, but are not limited to, delinquency and default metrics. The Company uses software that monitors credit quality of the respective portfolio and performs analysis on credit data.
The changes in allowance for credit losses on loans held for investment as of March 31, 2024 is as follows:
| Balance at January 1, 2024 | ||||
| Balance acquired from Credova Merger | $ | |||
| Charge-offs | ( | ) | ||
| Provision for credit losses | ||||
| Balance at March 31, 2024 | $ | |||
19
Note 8 - Revolving Line of Credit
The Company assumed a $
The revolving loan will go into amortization period beginning July
1, 2024, in accordance with the Amended and Restated Loan Security Agreement. Monthly remittance remains in effect with a borrowing base
calculation. During the amortization period, the Company will repay the aggregate outstanding advances until such aggregate outstanding
advances do not exceed the borrowing base, and then one-hundred percent (
The revolving line of credit maturity date is
subsequent to the revolving period, that is the earlier of: (a) nine (9) months following the funding termination date (June 30, 2024)
and (b) the remittance date on which the aggregate outstanding advances are $
Certain assets at Credova are assigned as collateral. The total amount that can be borrowed under the loan is reduced to the amount of the borrowing base if that amount is lower. The borrowing base is based upon a percentage of eligible receivables which are valued as the outstanding principal amount, less adjustments for loans held for investment that are more than thirty-one days but no more than sixty days past due. For calculating the borrowing base, receivables more than sixty days past due are excluded.
As of March 31, 2024, the outstanding advances
under this revolving loan totaled $
Note 9 - Convertible Promissory Notes
On March 13, 2024, the Company entered into
a note purchase agreement for a
Promissory Note Exchange
Prior to the execution of the Credova Merger Agreement,
Credova, PSQ and certain holders of outstanding subordinated notes (“Subdebt Notes”) issued by Credova (the “Participating
Noteholders”) entered into a Note Exchange Agreement (the “Note Exchange Agreement”) pursuant to which, immediately
prior to the Closing, the Participating Noteholders delivered their Subdebt Notes of Credova for cancellation, in exchange for newly-issued
replacement notes issued by PSQ, convertible into shares of Class A Common Stock (the “Replacement Notes”). The Replacement
Notes have
Pursuant to the terms of the Replacement
Notes, at any time after the Closing, Participating Noteholders may elect to convert their Replacement Notes into a number of shares of
Class A Common Stock equal to the quotient obtained by dividing (x) the outstanding principal amount of the Replacement Note to be converted
plus accrued and unpaid interest by (y)
Credova Subdebt Notes not exchanged for Replacement Notes at Closing were cancelled following payment in full in cash.
As of March 31, 2024, the convertible promissory
notes payable was $
Convertible Promissory Notes
In March 2023, the Company issued convertible
promissory notes (the “Note” or “Notes”) in the total amount of $
20
As described in Note 1, on July 19, 2023, the
Company consummated the Business Combination and became a publicly-traded company at which time the balance under each Note converted
automatically into shares of PSQ Common Stock at a conversion price per share based upon an implied $
The Notes are required to be recorded at their initial fair value on the date of issuance under ASC 480-10-25-14, and each balance sheet date thereafter. Changes in the estimated fair value of the Notes are recognized as non-cash gains or losses in the condensed consolidated statements of operations.
| Convertible Promissory Notes | ||||
| Fair value as of January 1, 2023 | $ | |||
| Principal balance of convertible notes issued | ||||
| Change in valuation inputs or other assumptions | ||||
| Fair value as of March 31, 2023 | $ | |||
| Exercise price | $ | |||
| Risk-Free Rate | % | |||
| Maturity (in years) | ||||
| Volatility | % |
Note 10 - Leases
Since inception, the Company has entered into
four leases for office suites in California and Florida, two were short-term and two leases were long-term and expire in 2024 and 2025.
Termination of the any lease is prohibited unless there is a violation under the lease agreement. The California lease has escalating
payments from $
In conjunction with the Credova Merger, the Company
acquired a lease agreement for its corporate office in Montana which had a commencement date of May 2022 and contains annual rent increases
through April 2027. There is no purchase option or transfer of title of the leased premises at the end of the lease. The Company is responsible
for all expenses, maintenance and taxes on the leased premises during the lease term. The Company has the option to renew the lease for
an additional five-year period at prevailing rental rates at that time. In determining the length of the lease term, the Company did not
include the optional renewal as on commencement date that renewal was not probable. At acquisition date, the Company estimated the lease
liability and the right-of-use assets at present value using the Company’s estimated incremental borrowing rate of
Rent expense under the operating leases included
in the results of operations, inclusive of common area maintenance charges, utilities, and real estate taxes, was approximately $
| March 31, 2024 | December 31, 2023 | |||||||
| ROU assets | $ | $ | ||||||
| Lease liabilities: | ||||||||
| Current lease liabilities | $ | $ | ||||||
| Non-current lease liabilities | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Other supplemental information: | ||||||||
| Weighted average remaining lease term | ||||||||
| Weighted average discount rate | % | % | ||||||
21
| Fiscal Year | March 31, 2024 | |||
| Remainder of 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ | |||
Note 11 - Warrant Liabilities
As part of Colombier’s IPO, Colombier issued
warrants to third-party investors where each whole warrant entitles the holder to purchase
These warrants expire on the fifth anniversary
of the Business Combination or earlier upon redemption or liquidation and are exercisable commencing
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon not less than |
| ● | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
22
The Public Warrants and Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognized the warrant instruments as liabilities at fair value as of the Closing Date, with an offsetting entry to additional paid-in capital and adjusts the carrying value of the instruments to fair value through other income (expense) on the condensed consolidated statement of operations at each reporting period until they are exercised. As of March 31, 2024 and December 31, 2023, the fair value of the Public Warrants and Private Placement Warrants liabilities are presented within warrant liabilities on the condensed consolidated balance sheet.
Note 12 - Related Parties
On March 13, 2024, the Company entered into
a note purchase agreement for a
On August 25, 2023, the Company and its former Chief Operating Officer
(“Former COO”) entered into a separation and release of claims agreement (the “Separation Agreement”) providing
for the Former COO’s departure from his position to pursue other business opportunities. The effective date of the Former COO’s
departure was August 25, 2023 (the “Separation Date”). Pursuant to the Separation Agreement, the Former COO is entitled to
receive continued payment of his 2023 annual base salary for a period of 12 months, subject to his compliance with the Separation Agreement,
including a release of claims in favor of the Company, certain restrictive covenants described below and the forfeiture to the Company
by the Former COO of
In August 2023, the Company signed a one-year
strategic consulting agreement with a consulting company that is controlled by a board member. The consulting company was engaged by the
Company to provide strategic advice and assistance to the Company in connection with capital markets strategy, acquisition strategy, investor
relations strategy, and other strategic matters for a fixed fee of $
In June 2023, the Company signed a consulting
agreement with a board member to provide advisory services to EveryLife. In exchange the board member receives $
23
Note 13 - Share Based Compensation
On July 25, 2023, the Board of Directors of the Company approved the PSQ Holdings, Inc. 2023 Stock Incentive Plan as well as the 2023 Employee Stock Purchase Plan, whereby it may grant to certain employees, consultants and advisors an award, such as (a) incentive stock options, (b) non-qualified stock options, (c) restricted stock and (d) RSUs, of the Company.
2023 Stock incentive plan
Awards may be made under the Plan for up to such number of shares of Class A Common Stock of the Company as is equal to the sum of:
(A) a number of shares of Class A Common Stock equal to fifteen percent
(
(B) an annual increase to be added on the first
day of each fiscal year, commencing on January 1, 2024 and continuing for each fiscal year until, and including, January 1, 2033, equal
to the lesser of (i)
2023 Employee Stock Purchase plan
The purpose of this plan is to provide eligible employees
opportunities to purchase shares of the Company’s Class A Common Stock. For this purpose, the Board approved
Restricted Stock Units
There were no RSUs granted during the three months ended March 31, 2023. During the three months ended March 31, 2024, the Company issued RSU’s under the 2023 Stock Incentive Plan to employees, advisors, and board of directors. Each RSU entitles the recipient to one share of our common stock upon vesting. The Company measures the fair value of RSUs using the stock price on the date of grant.
Share-based compensation expense for RSUs is recorded ratably over their vesting period.
| Number of RSUs | Weighted Average Grant Date Value | |||||||
| Unvested as of January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ( | ) | ||||||
| Unvested as of March 31, 2024 | $ | |||||||
As of March 31, 2024 and December 31, 2023 there were
As of March 31, 2024, unrecognized compensation cost
related to the grant of RSUs was approximately $
24
Share based compensation relating to earn-out
In accordance with ASC 718, these are awards granted
with a market condition. The effect of this market condition was reflected in the grant-date fair value of an award.
| As of 7/19/2023 | ||||
| PSQH Stock Price | $ | |||
| Volatility | % | |||
| Risk free rate of return | % | |||
| Expected term (in years) | ||||
As of March 31, 2024, the Company recorded $
| For the three March 31, 2024 | ||||
| Cost of sales | $ | |||
| General and administrative expenses | ||||
| Research and development | ||||
| Sales and marketing | ||||
Transaction costs incurred in connection with Credova Merger | ||||
| $ | ||||
25
Note 14 - Fair Value Measurements
The Company accounts for certain assets and liabilities at fair value and classify these assets and liabilities within the fair value hierarchy (Level 1, Level 2, or Level 3).
| As of March 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents - Money market | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liabilities - Public Warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liabilities - Private placement warrants (1) | ||||||||||||||||
| Earnout liabilities (2) | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents - Money market | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liabilities - Public Warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liabilities - Private placement warrants (1) | ||||||||||||||||
| Earnout liabilities (2) | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| (1) | |
| (2) |
| For the three months ended March 31, 2024 | ||||
| Liability at January 1, 2024 | $ | |||
| Change in fair value | ( | ) | ||
| Balance as of March 31, 2024 | $ | |||
| For the three months ended March 31, 2024 | ||||
| Liability at January 1, 2024 | $ | |||
| Change in fair value | ( | ) | ||
| Balance as of March 31, 2024 | $ | |||
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Note 15 - Segments
The Company routinely evaluates whether its operating and reportable segments continue to reflect the way the CODM evaluates the business. The determination is based on: (1) how the Company’s CODM evaluates the performance of the business, including resource allocation decisions, and (2) whether discrete financial information for each operating segment is available. The Company considers the chief executive officer to be its CODM.
As of March 31, 2024, the Company’s operating and reportable segments include:
| ● | Marketplace: PSQ has created a marketplace platform to access consumers that are drawn to patriotic values. The Company generates revenue from advertising and e-commerce transaction revenues. |
| ● | Brands: Our wholly owned brand is EveryLife, Inc., which generates revenue from online and wholesale sales of diapers and wipes. |
| ● | Financial Technology: Our wholly owned subsidiary is Credova Holdings, Inc., which generates revenue primarily through four activities: revenue from sale of loan contracts, revenue from interest earned on loans and leases, revenue from retailer discounts and origination fees paid by lending institutions (direct revenue) earned in connection with providing financing on consumer goods. |
The CODM measures and evaluates the Company’s performance based on segment gross revenue, segment gross profit margin and segment operating income, before interest, taxes, depreciation, and amortization (“EBITDA”). Adjusted EBITDA is defined as earnings (loss) from operations less depreciation and amortization, share based compensation and transaction costs. Earnings (loss) from operations excludes interest, interest expense, (gain) loss on sale of equipment, change in fair value of financial instruments and other expenses. The Company believes that Adjusted EBITDA is an appropriate measure for evaluating the operating performance of the Company’s business segments because it is the primary measure used by the Company’s chief operating decision maker to evaluate the performance of and allocate resources to the Company’s businesses.
Segment performance, as defined by the Company, is not necessarily comparable to other similarly titled captions of other companies.
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net: | ||||||||
| Marketplace | ||||||||
| Advertising and e-commerce sales | $ | $ | ||||||
| Brands | ||||||||
| Product sales | ||||||||
| Returns and discounts | ( | ) | ||||||
| Total Brands revenues, net | ||||||||
| Financial Technology | ||||||||
| Direct revenue | ||||||||
| Interest income on loans and leases | ||||||||
| Loan and lease contracts sold, net | ||||||||
| Total Financial Technology revenues, net | ||||||||
| Total revenues, net | $ | $ | ||||||
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| March 31, 2024 | March 31, 2023 | |||||||||||||||||||||||
| Marketplace | Brands | Financial Technology | Total | Marketplace | Total | |||||||||||||||||||
| Revenues, net | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Segment cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Segment cost of goods sold | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Segment Gross Profit | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Segment Gross Profit Margin % | % | % | % | % | % | % | ||||||||||||||||||
| Adjusted EBITDA | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Adjusted EBITDA: | ||||||||
| Marketplace adjusted EBITDA | $ | ( | ) | $ | ( | ) | ||
| Brands adjusted EBITDA | ( | ) | ||||||
| Financial Technology adjusted EBITDA | ( | ) | ||||||
| Total adjusted EBITDA | ( | ) | ( | ) | ||||
| Transaction costs incurred in connection with acquisitions | ( | ) | ||||||
| Share-based compensation (exclusive of what is included in transaction costs above) | ( | ) | ||||||
| Depreciation and amortization | ( | ) | ( | ) | ||||
Other income, net | ||||||||
| Change in fair value of warrant liabilities | ||||||||
| Change in fair value of earnout liabilities | ||||||||
| Change in fair value of convertible notes | ( | ) | ||||||
| Income tax benefit (expense) | ( | ) | ||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
No asset information has been disclosed as the CODM does not regularly review asset information by reportable segment.
Note 16 - Commitments and Contingencies
Advertising Commitment
In October 2023, the Company entered into a one-year
advertising agreement with a media group for the purpose of promoting the Company and its services on a national platform. In connection
with this agreement, the Company has committed to pay $
As of March 31, 2024, the Company has completed
one of the six installments, for total amount paid of $
Other Legal Matters
From time to time in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At March 31, 2024 and December 31, 2023, the Company did not have any pending claims, charges or litigation that were expected to have a material adverse impact on its financial position, results of operations or cash flows.
Note 17 - Subsequent Events
The Company has evaluated and recognized or disclosed subsequent events, as appropriate, from the condensed consolidated balance sheet date through the date the condensed consolidated financial statements were available to be issued.
In April 2024, the Company entered into a
second letter agreement with the same strategic consulting company to engage the consulting company as an advisor to the Company in
connection with potential acquisitions (see Note 12). The term of the Letter Agreement was the earlier of twelve (12) months from the date of the
agreement or the consummation of an acquisition. As consideration, the consulting company will receive
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes hereto included in Part I, Item 1 of this quarterly report on Form 10-Q and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2024. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below, and those discussed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC.
Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “PSQ,” “we”, “us”, “our”, and the “Company” are intended to refer to (i) following the Business Combination, the business and operations of PSQ Holdings, Inc. and its consolidated subsidiaries, and (ii) prior to the Business Combination, Private PSQ (the predecessor entity in existence prior to the consummation of the Business Combination) and its consolidated subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This report, including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, the future financial performance of the company, our growth plans and opportunities, our financial performance, our ability to raise additional funds, and any other statements that are not statements of current or historical facts.
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in our registration statement on Form S-1 (File No. 333-273830), which are incorporated by reference herein. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable law. These risks and others described under “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.
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Overview
PublicSquare is a holding company that strategically unites key products and services, forming the backbone of the parallel economy’s ecosystem via its three core segments (further defined as “Marketplace”, “Financial Technology”, and “Brands”). The primary mission of the Marketplace segment is to help consumers ‘shop their values’ and put purpose behind their purchases. PublicSquare leverages data and insights from the Marketplace to assess its customers’ needs and provide wholly-owned quality financial products and brands. PublicSquare’s Financial Technology segment consists of a consumer financing company focusing on the outdoor sports and shooting industry. PublicSquare’s Brands segment consists of direct-to-consumer (“D2C”) consists of a premium life-affirming baby products company, as well as business services.
We incorporated PSQ Holdings, Inc. in February of 2021, began development of our digital platform (mobile app and website) in May 2021 and launched our initial product regionally in San Diego County, California in October 2021 on iOS, Android and on our website. After 10 months of testing in various markets and courting member feedback, we launched the PSQ platform (the “Platform”) nationwide on July 4, 2022.
On February 23, 2023, we completed a stock-for-stock transaction to purchase 100% of the outstanding shares of EveryLife, Inc. (“EveryLife”), a Delaware corporation, in exchange for 1,071,229 shares of common stock, par value $0.001 per share, of Private PSQ (“Private PSQ Common Stock”).
On July 19, 2023, in accordance with the plan of arrangement to reorganize PSQ Holdings. Inc, the Company finalized a business combination (the “Business Combination”) with Colombier Acquisition Corp. (“Colombier”). On closing, the common shares of PSQ Holdings Inc. were listed on the New York Stock Exchange and commenced trading under the symbol “NYSE:PSQH”.
On March 13, 2024, the Company entered into an agreement and plan of merger (the “Credova Merger Agreement”) with Cello Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub” and, together with PSQ, the “Buyer Parties”), Credova Holdings, Inc., a Delaware corporation (“Credova”), and Samuel L. Paul, in the capacity as the Seller Representative in accordance with the terms of the Credova Merger Agreement (“Credova Merger”).
The mailing address of PSQ’s principal executive office is 250 S. Australian Avenue, Suite 1300, West Palm Beach, Florida 33401.
Recent Developments
On March 13, 2024, we entered into a note purchase agreement for a 9.75% private placement convertible note for $10,000,000 invested by a board member and his affiliates. Terms for the note were priced based on notes exchanged as part of the Credova transaction. Our stockholders have approved the issuance of the underlying shares as part of our annual stockholder meeting in April 2024 and the funds were received May 3, 2024.
Credova Merger Agreement
On March 13, 2024, the Company entered into the Credova Merger Agreement with Buyer Parties, Credova, and the Seller Representative in accordance with the terms of the Credova Merger Agreement.
Credova assists consumers, lenders, and retailers in offering point-of-sale financing products. Credova has developed and maintains an internet-based proprietary retail finance platform and related application programming interfaces (“APIs”) through which Credova, certain Federal Deposit Insurance Corporation (“FDIC”) and National Credit Union Administration (“NCUA”) insured financial institutions, and other financial institutions authorized by Credova (each a “Financing Partner”), and merchants can dynamically offer certain financing products (collectively, the “Services”).
Pursuant to the Credova Merger Agreement, on March 13, 2024, the transactions which are the subject of the Credova Merger Agreement were consummated (the “Closing”) and Merger Sub merged with and into Credova (the “Credova Merger”), with Credova surviving as a wholly-owned subsidiary of PSQ. In connection with the Credova Merger, each share of Credova was converted into the right to receive newly-issued shares of our Class A common stock (“Class A Common Stock”), delivered to the Credova stockholders at the Closing (“Credova Stockholders”).
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As consideration for the Credova Merger, Credova stockholders received 2,920,993 newly-issued shares of Class A Common Stock (the “Consideration Shares”). A number of Consideration Shares equal to ten percent (10%) of the Consideration Shares (the “Escrow Shares”) was placed in an escrow account for indemnity claims made under the Credova Merger Agreement. Assuming they are not subject to indemnity claims, the Escrow Shares remaining in escrow upon the 12-month anniversary of the Closing will be released and distributed pro rata to the former stockholders of Credova.
The acquisition of Credova was accounted for as a business combination using the acquisition method pursuant to FASB ASC Topic 805. As the acquirer for accounting purposes, the Company had estimated the purchase price, assets acquired and liabilities assumed as of the acquisition date, with the excess of the purchase price over the fair value of net assets acquired recognized as goodwill. The Company is in the process of finalizing the allocation of the purchase price. As a result, the fair value estimates assigned to intangible asset, goodwill and the related tax impacts of the acquisition, among other items, are preliminary and subject to change as additional information is received to complete the analysis, including final adjustments to net working capital. The Company expects to finalize the valuation as soon as practicable, but no later than one year after the acquisition date.
Promissory Note Exchange
Prior to the execution of the Credova Merger Agreement, Credova, PSQ and certain holders of outstanding subordinated notes (“Subdebt Notes”) issued by Credova (the “Participating Noteholders”) entered into a Note Exchange Agreement (the “Note Exchange Agreement”) pursuant to which, immediately prior to the Closing, the Participating Noteholders delivered their Subdebt Notes of Credova for cancellation, in exchange for newly-issued replacement notes issued by PSQ, convertible into shares of Class A Common Stock (the “Replacement Notes”). The Replacement Notes have 9.75% simple interest per annum and ten-year maturity dates.
Pursuant to the terms of the Replacement Notes, at any time after the Closing, Participating Noteholders may elect to convert their Replacement Notes into a number of shares of Class A Common Stock equal to the quotient obtained by dividing (x) the outstanding principal amount of the Replacement Note to be converted plus accrued and unpaid interest by (y) 4.63641, subject to adjustment for stock splits and other similar transactions (the “Conversion Price”). At any time, the Company may call the Replacement Notes for a cash amount equal to accrued interest plus (i) between the Closing and the first anniversary of the Closing, 120% of the then outstanding principal amount, (ii) between the first anniversary and the second anniversary of the Closing, 105% of the then outstanding principal amount and (iii) after the second anniversary of the Closing, the then outstanding principal amount of the Replacement Note. Further, the Replacement Notes permit the Company, in its discretion, to require conversion of the Replacement Notes into shares of Class A Common Stock if the daily volume-weighted average trading price of the Company Class A Common Stock exceeds 140% of the Conversion Price on each of at least ten consecutive trading days during the twenty trading day period prior to notice of such required conversion.
Key Business Metrics and Selected Financial Data
We use the following key metrics and non-GAAP measures to evaluate our performance, identify trends affecting our business, and make strategic decisions:
| ● | Segment Revenue (see discussion below in “Results of Operations”); |
| ● | Adjusted EBITDA (see “Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA and a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA); |
| ● | Monthly Active Users (“MAUs”); and |
| ● | Gross Merchandise Volume (“GMV”). |
For MAU and GMV, these metrics are based on internal company data, assumptions, and estimates and are used in managing our business. We believe that these figures are reasonable estimates, and we actively take measures to improve their accuracy, such as eliminating known fictitious or duplicate accounts. There are, however, inherent challenges in gathering accurate data across large online and mobile populations.
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Adjusted EBITDA
We define adjusted EBITDA, a non-GAAP financial measure, as earnings (loss) before interest expense, income tax expense (benefit), depreciation and amortization, as adjusted to exclude change in fair value of our financial instruments, other income (expense), net, transaction expenses and share-based compensation expense. See “Non-GAAP Financial Measures” for a reconciliation of GAAP net loss to adjusted EBITDA.
MAU
We use MAUs as a measure of platform engagement to help us understand the volume of users engaged with our platform on a monthly basis. MAUs represent the total web and mobile app users for each month, which allows us to measure our total user base calculated from data provided by Google, a third-party analytics provider. Google defines “active users” as the “number of distinct users who visited your website or application.” We have used the Google analytics systems since we first began publicly reporting MAU statistics, and the resulting data have not been independently verified. For the three months ended March 31, 2024 and 2023, average MAUs was 222,333 and 53,667, respectively, a year-over-year growth of 314%.
GMV
In addition to revenue, net loss, adjusted EBITDA, and other results under U.S. GAAP, the following table sets forth key operating metrics we use to evaluate our Financial Technology segment. The information below represents proforma information as if the Credova Merger closed on January 1, 2023:
| Three Months Ended March 31, |
||||||||||||
| 2024 | 2023 | % Change | ||||||||||
| Gross merchandise volume (“GMV”) | $ | 16,893,281 | $ | 11,619,930 | 45.4 | % | ||||||
We measure GMV to assess the volume of transactions that take place on our platform. We define GMV as the total dollar amount of all transactions on the Platform during the applicable period, net of refunds. GMV does not represent revenue earned by us; however, it is an indicator of the success of our merchants and the strength of our platform.
For the three months ended March 31, 2024, GMV was $16.9 million which represented an increase of approximately 45% as compared to the same period in 2023. Overall, the increase in GMV was primarily driven by the expansion of our active merchant base and increases in active consumers. The increase in GMV for the three months ended March 31, 2024 also reflected increased consumer demand for our bank originated products.
For the three months ended March 31, 2024, our top five merchants and platform partners represented approximately 40% of total GMV, as compared to 55% for the three months ended March 31, 2023. GMV attributable to our largest merchant during both the three months ended March 31, 2024 represented 15% of total GMV, compared to 17% for the same period in 2023.
Components of Results of Operations
During the three months ended March 31, 2024 and 2023, our net loss was $12.6 million and $6.7 million, respectively. Our net loss increased, largely due to the $2.2 million decrease in fair value of the warrant liabilities, as well as $2.3 million related to transaction costs incurred relating to the acquisition and $5.0 million of share-based compensation incurred (less amounts included in transaction costs). Our expenses will likely increase in the future as we develop and launch new offerings and platform features, expand in existing and new markets, increase our sales and marketing efforts and continue to invest in our platform, as well as a result of our becoming a public company. We have not been profitable since inception. As of March 31, 2024, our accumulated deficit was $74.8 million. Since inception, we have financed our operations primarily through equity raises and operating activities.
Revenues, net
We generate revenues from our three segments: Marketplace, Brands and Financial Technology; a summary of each is described below.
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Marketplace
Our advertising revenues are derived from short-term, typically multi-month fixed price contracts for advertising subscription arrangements. Revenues from subscription contracts are recognized using the “over-time” method of revenue recognition. Accordingly, we recognize revenues over-time as the advertisements are displayed over the subscription period and the service is being consumed by the business member simultaneously over the period of service. Over-time revenue recognition is based on an input measure of progress. Each advertisement has a contractual revenue value and an estimated cost. The over-time revenue is recognized over the contract term as the Company performs on its performance obligation.
Additionally, we recognize advertising revenue from push notifications and email blasts at the point of delivery. Push notifications and email blasts are considered delivered when an advertisement is displayed to users.
E-commerce revenue is generated from the Platform. The Platform features a single cart shopping experience where consumers can purchase a variety of products from multiple vendors in one transaction. The Company is not the seller of record in these transactions. The commissions revenue earned from these arrangements are recognized at the point of sale on a net basis, which equates to the commission and processing fees earned in exchange for the seller marketplace services.
In the future, in addition to greater levels of advertising revenue expected as a result of the growth of our marketplace, we also expect to realize increased amounts of business-to-business (“B2B”) revenue and e-commerce transactional revenue as we expand our business operations into those areas.
Brands
Our brand revenues have been derived primarily from our sale of products.
In July 2023, the Company launched the EveryLife business and began to generate revenue through the sale of diapers and wipes to consumers by way of the EveryLife’s website. In November 2023, EveryLife’s products became available for purchase on the Platform. The Company considers customer orders to be the contracts with the customer. There is a single performance obligation, which is the Company’s promise to transfer the Company’s product to customers based on specific payment and shipping terms in the arrangement.
Financial Technology
The Company principally generates financing revenue from four activities: revenue from sale of loan and lease contracts, revenue from interest earned on loans, and revenue from retailer discounts and origination fees paid by lending institutions (direct revenue) earned in connection with providing financing on consumer goods. Revenue from the Company’s sales of loan and lease contracts is recognized at a point in time when the Company satisfies a performance obligation by transferring control of the leases to a third party. Revenue from loans and leases is recognized over time when the Company satisfies a performance obligation based on the agreed upon financing terms. Interest on loans is calculated by the simple-interest method on daily balances of the principal amount outstanding. Revenue from retailer discounts is recognized at a point in time when the Company satisfies performance obligations by purchasing the contract from the merchant in connection with a merchant-originated consumer financing product. Origination fees from lenders are recognized at time of loan origination.
For a description of our revenue recognition policies, see Note 3, Summary of Significant Accounting Policies, in our condensed consolidated financial statements.
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Cost of Revenue (exclusive of depreciation and amortization)
Cost of revenue (exclusive of depreciation and amortization) consists of the direct costs incurred in building and running the Platform, as well as underwriting and servicing fees related to our Financial Technology segment.
Cost of Goods Sold (exclusive of depreciation and amortization)
Cost of goods sold (exclusive of depreciation and amortization) includes the purchase price of merchandise sold to customers, inbound and outbound shipping and handling costs, freight and duties, shipping and packaging supplies and warehouse fulfillment costs incurred.
Operating Expenses
Operating expenses primarily include general and administrative, sales and marketing, research and development, and depreciation and amortization. The most significant component of our operating expenses is personnel-related costs such as salaries, benefits, share-based and variable compensation. We expect our personnel-related costs as a percentage of total costs to decrease over time.
We expect to continue to invest substantial resources to support our growth. We anticipate that each of the following categories of operating expenses, will increase in absolute dollar amounts and decrease as a percentage of revenue for the foreseeable future.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses for our finance, legal, human resources and administrative personnel, as well as the costs of information technology, professional services, insurance, travel, and other administrative expenses. We expect to invest in our corporate organization and incur additional expenses associated with transitioning to, and operating as, a public company, including increased legal, audit, tax and accounting costs, investor relations costs, higher insurance premiums and compliance costs. As a result, we expect that general and administrative expenses will increase in absolute dollars in future periods but decline as a percentage of total revenue over time. Our inability to scale our expenses could negatively impact profitability.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries, employee benefits, consultant fees, commissions, and direct marketing costs related to the promotion of PSQ’s platforms/solutions and certain costs related to the acquisition of both consumer and business members on the Platform. As a result, we expect that sales expenses will increase in absolute dollars in future periods as we increase marketing activities, grow our operations, and continue to build our brand awareness, but decline as a percentage of total revenue over time. Our inability to scale our expenses could negatively impact profitability.
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Research and Development Expenses
Research and development expenses consist primarily of salaries, employee benefits and consultant fees related to our development activities to originate, develop, and enhance the Platform. We expect research and development expenses to remain fairly consistent in the near term due to reallocation of our engineering and product resources to more profitable segments, such as PSQ Payments.
Depreciation and Amortization Expense
Depreciation and amortization expense consists primarily of amortization of capitalized software development costs.
Non-Operating Income and Other Items
Other Income, Net
Other income, net primarily relates to dividend income earned on the money market account for the three months ended March 31, 2024, and Employee Retention Tax Credit (“ERTC”) and the Research and Development Tax Credit (“R&D Tax Credit”) for the three months ended March 31, 2023.
Change in fair value of convertible promissory notes
Changes in the fair value of the convertible promissory notes are recorded in the condensed consolidated statement of operations. The convertible promissory notes represent a financial instrument other than an outstanding share that embodies a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares. We record the convertible promissory notes liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the convertible promissory notes’ issuance date with a charge to expense. The convertible promissory notes were converted to equity at the close of the Business Combination.
Change in fair value of earn-out liabilities
Changes in the fair value of earnout liabilities are recorded in the condensed consolidated statement of operations. The earn-out liabilities represent a financial instrument other than an outstanding share that embodies a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares. We record the earnout liability at its fair value at each reporting period.
Change in fair value of warrant liabilities
Changes in the fair value of warrant liabilities are recorded in the condensed consolidated statement of operations. The warrant liabilities represent a financial instrument other than an outstanding share that embodies a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares. We record the warrant liabilities at its fair value at each reporting period.
Interest Expense, net
Interest expense incurred consists of interest accrued on revolving line of credit and convertible promissory notes issued.
Income Tax Expense
We are subject to income taxes in the United States, but due to our net operating loss (“NOL”) position, we have recognized a minimal provision or benefit in recent years. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. We have established a full valuation allowance to offset our U.S. net deferred tax assets due to the uncertainty of realizing future tax benefits from our NOL carryforwards and other deferred tax assets.
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Results of Operations
The results of operations presented below should be reviewed in conjunction with the unaudited condensed consolidated financial statements for the three months ended March 31, 2024 found elsewhere in this document.
The following table sets forth our condensed consolidated statement of operations for the three ended March 31, 2024 and 2023, and the dollar and percentage change between the two periods:
| Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Variance, $ | Variance, % | |||||||||||||
| Revenues, net | 3,465,889 | 378,034 | 3,087,855 | 817 | % | |||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue (exclusive of depreciation and amortization expense shown below) | 598,361 | 362,973 | 235,388 | 65 | % | |||||||||||
| Cost of goods sold (exclusive of depreciation and amortization expense shown below) | 1,391,408 | - | 1,391,408 | NM | ||||||||||||
| General and administrative | 10,262,878 | 4,091,850 | 6,171,028 | 151 | % | |||||||||||
| Sales and marketing | 4,682,638 | 666,057 | 4,016,581 | 603 | % | |||||||||||
| Research and development | 1,141,958 | 248,500 | 893,458 | 360 | % | |||||||||||
| Depreciation and amortization | 296,597 | 545,337 | (248,740 | ) | (46 | )% | ||||||||||
| Total costs and expenses | 18,373,840 | 5,914,717 | 12,459,123 | 211 | % | |||||||||||
| Operating loss | (14,907,951 | ) | (5,536,683 | ) | (9,371,268 | ) | 169 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income, net | 103,379 | 5,138 | 98,241 | 1912 | % | |||||||||||
| Change in fair value of convertible promissory notes | - | (1,147,905 | ) | 1,147,905 | (100 | )% | ||||||||||
| Change in fair value of earn-out liabilities | 120,000 | - | 120,000 | NM | ||||||||||||
| Change in fair value of warrant liabilities | 2,231,500 | - | 2,231,500 | NM | ||||||||||||
| Interest expense, net | (124,178 | ) | (8,001 | ) | (116,177 | ) | 1452 | % | ||||||||
| Loss before income taxes | (12,577,250 | ) | (6,687,451 | ) | (5,889,799 | ) | 88 | % | ||||||||
| Income tax benefit (expense) | 419 | (189 | ) | 608 | (322 | )% | ||||||||||
| Net loss | $ | (12,576,831 | ) | $ | (6,687,640 | ) | (5,889,191 | ) | 88 | % | ||||||
NM* - Percentage change not meaningful.
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Revenues, net
| For the three months ended March 31, | Variance, | Variance, | ||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenues, net: | ||||||||||||||||
| Marketplace | ||||||||||||||||
| Advertising and e-commerce sales | $ | 945,471 | $ | 378,034 | $ | 567,437 | 150 | % | ||||||||
| Brands | ||||||||||||||||
| Product sales | 2,350,510 | - | 2,350,510 | NM | ||||||||||||
| Returns and discounts | (207,101 | ) | - | (207,101 | ) | NM | ||||||||||
| Total Brand revenues, net | 2,143,409 | - | 2,143,409 | NM | ||||||||||||
| Financial Technology | ||||||||||||||||
| Direct revenue | 154,607 | - | 154,607 | NM | ||||||||||||
| Interest income on loans | 139,398 | - | 139,398 | NM | ||||||||||||
| Loan and lease contracts sold, net | 83,004 | - | 83,004 | NM | ||||||||||||
| Total Financial Technology revenues, net | 377,009 | - | 377,009 | NM | ||||||||||||
| Total revenues, net | $ | 3,465,889 | $ | 378,034 | $ | 3,087,855 | 817 | % | ||||||||
Revenues, net increased by $3.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was driven by addition of product sales of $2.4 million partially offset by returns and discounts of $0.2 million, as well as an increase in the business member base and introduction of new advertising features on our platform, which resulted in an increase of advertising revenues of $0.6 million. Additionally, the Credova Merger accounted for an additional $0.4 million revenue for the three months ended March 31, 2024.
Cost of revenue (exclusive of depreciation and amortization)
Cost of revenue (exclusive of depreciation and amortization) increased by $0.2 million, or 65%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was mainly due to an increase in personnel expenses of $0.2 million.
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Cost of goods sold (exclusive of depreciation and amortization)
Cost of goods sold (exclusive of depreciation and amortization) increased by $1.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was mainly due to the sale of products of $1.4 million.
General and Administrative Expense
General and administrative expense increased by $6.2 million, or 151%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 The increase was due to a $3.7 million increase in staffing-related costs, $2.3 million in transaction related costs, and $0.2 million increase in other administrative expenses, which include accounting, legal, and other administrative services.
Sales and Marketing Expense
Sales and marketing expense increased by $4.0 million, or 603%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was due to a $4.0 million increase in other marketing and public relation activities.
Research and Development Expense
Research and development expense increased by $0.9 million or 360%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was due to an increase in staffing-related costs in our product and engineering teams, as well as costs related to computer software, hardware, and other administrative expenses.
Depreciation and amortization
Depreciation and amortization expense decreased $0.2 million, or 46%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease was primarily related to the completion of amortization of version 1.0 of the Platform and the amortization of version 2.0 of the Platform is being amortized over a longer useful life.
Other Income, net
Other income, net changed by $0.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, due to dividend income earned on the money market accounts.
Interest Expense, net
Interest expense, net increased by $0.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was due to the interest payable in relation to the convertible promissory notes recorded as of December 31, 2023.
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Income Tax Benefit (Expense)
Income tax benefit (expense) increased by an insignificant amount for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Liquidity and Capital Resources
Historically, we have financed operations primarily through cash generated from equity raises, other financing activities and operating activities. Our primary short-term requirements for liquidity and capital are to fund general working capital and capital expenditures. Our principal long-term working capital uses include increasing our advertising and marketing exposure, expanding our internal engineering and product teams, developing and launching D2C products, and developing and rolling out e-commerce capabilities.
In connection with the expected launch of our first D2C branded products, we intend to fund initial inventory requirements with cash on hand. Longer term, our expected liquidity and capital requirements will likely consist of research and development needed to identify additional D2C opportunities. We do not currently anticipate that growth and expansion into new areas, such as D2C consumer products, will require us to make significant capital investments in our business, as we plan to employ an “asset light” business model and rely on third party manufacturers and other outsourced third party relationships as we build this part of our business.
As of March 31, 2024, our cash and cash equivalents balance was $9.1 million and net working capital of $6.6 million. Cash and cash equivalents consist of interest-bearing deposit accounts managed by third-party financial institutions, and highly liquid investments with maturities of three months or less.
On May 3, 2024, the Company received the $10,000,000 proceeds from a 9.75% private placement convertible note invested by a board member and his affiliates.
Additionally, our Board of Directors and executive team have also outlined a strategic plan to improve the cash position by gaining access to additional capital. These initiatives may include reallocation of resources to more profitable segments of the business, completing a private placement equity raise, entering into a revolving line of credit agreement and refinement of inventory purchase timing which will reduce excess stock levels.
The Company believes that as a result of the Business Combination, convertible note proceeds, the Credova Merger, strategic resource allocation initiatives, planned equity raises, inventory management and line of credit financing, along with its existing cash and cash equivalents, that the Company will be able to fund operations and capital needs for the next year from the date these condensed consolidated financial statements were available to be issued.
Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and extent of spending by us to support further sales and marketing and research and development efforts, the degree to which we are successful in launching new business initiatives such as our contemplated e-commerce and D2C business initiatives and the cost associated with these initiatives, and the growth of our business generally. In order to finance these opportunities and associated costs, it is possible that we will need to raise additional financing if the proceeds realized by us from the Credova Merger are insufficient to support our business needs. While we believe that the proceeds realized by us through the Merger will be sufficient to meet our currently contemplated business needs, we cannot assure you that this will be the case. If additional financing is required by us from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital on acceptable terms when needed, our business, results of operations and financial condition would be materially and adversely affected.
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Comparison of the Three Months Ended March 31, 2024 and 2023
The following table shows our cash flows provided by (used in) operating activities, investing activities and financing activities for the stated periods:
| For the three months ended March 31, | ||||||||||||
| 2024 | 2023 | Variance | ||||||||||
| Net cash used in operating activities | $ | (6,524,740 | ) | $ | (3,020,733 | ) | (3,504,007 | ) | ||||
| Net cash used in investing activities | (358,574 | ) | (783,442 | ) | 424,868 | |||||||
| Net cash (used in) provided by financing activities | (215,865 | ) | 4,650,125 | (4,865,990 | ) | |||||||
Net Cash Used in Operating Activities
Net cash used in operating activities for the three months ended March 31, 2024 was $6.5 million compared to $3.0 million used in operating activities during the three months ended March 31, 2023. The increase in cash used in operating activities was due to an overall increase in operating expenses, resulting in an increased net loss of $5.9 million. This was offset with an increase in non-cash expenses for share based compensation of $5.9 million. Also offsetting this was an increase in cash provided by operating assets and liabilities of $0.5 million.
Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2024 was $0.4 million, a decrease of $0.4 million from cash used in investing activities of $0.8 million for the three months ended March 31, 2023. The decrease was primarily due to $0.3 million of net loan activity as well as $0.1 million of cash received from acquisitions.
Net Cash (Used in) Provided by Financing Activities
Net cash used in financing activities for the three months ended March 31, 2024 was $0.2 million as compared to $4.7 million provided by financing activities for the three months ended March 31, 2023. Cash provided by financing activities for the months ended March 31, 2023 primarily relate to proceeds from the issuance of common stock of $2.6 million and proceeds from the issuance of convertible promissory notes of $2.1 million. No such activities occurred during the three months ended March 31, 2024.
Non-GAAP Financial Measures
The non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. In addition, Adjusted EBITDA should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.
Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (i) monitor and evaluate the performance of our business operations and financial performance; (ii) facilitate internal comparisons of the historical operating performance of our business operations; (iii) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess the operating performance of our management team; (v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
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Adjusted EBITDA
We define adjusted EBITDA, a non-GAAP financial measure, as net earnings (loss) before interest and other expenses, net, income tax expense, depreciation and amortization, as adjusted to exclude change in fair value of our financial instruments, other income (expense), net, transaction expenses and share-based compensation expense. We utilize adjusted EBITDA as an internal performance measure in the management of our operations because we believe the exclusion of these non-cash and non-recurring charges allow for a more relevant comparison of our results of operations to other companies in our industry. Adjusted EBITDA should not be viewed as a substitute for net loss calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently.
The following table provides a reconciliation of net loss to adjusted EBITDA to net loss for the periods presented:
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | (12,576,831 | ) | $ | (6,687,640 | ) | ||
| Excluding: | ||||||||
| Interest expense, net | 124,178 | 8,001 | ||||||
| Income tax (benefit) expense | (419 | ) | 189 | |||||
| Change in fair value of convertible notes | - | 1,147,905 | ||||||
| Change in fair value of earn-out liabilities | (120,000 | ) | - | |||||
| Change in fair value of warrant liabilities | (2,231,500 | ) | - | |||||
| Other income, net | (103,379 | ) | (5,138 | ) | ||||
| Depreciation and amortization | 296,597 | 545,337 | ||||||
| Share-based compensation (exclusive of what is shown below in transaction costs) | 4,999,014 | - | ||||||
| Transaction costs incurred in connection with acquisition | 2,293,594 | - | ||||||
| Adjusted EBITDA | $ | (7,318,746 | ) | $ | (4,991,346 | ) | ||
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Significant Management Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements also requires we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, balance sheet, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our balance sheet and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those consolidated financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. Our significant accounting policies are described in Note 3 to our Unaudited Condensed Consolidated Financial Statements for the three-month period ended March 31, 2024 included elsewhere in this report. Our critical accounting policies are described below.
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Revenue Recognition
[1] Marketplace Revenues
E-commerce revenues
The Platform features a single cart shopping experience where consumers can purchase a variety of products from multiple vendors in one transaction. The Company is not the seller of record in these transactions. The commissions revenue earned from these arrangements are recognized on a net basis, which equates to the commission and processing fees earned in exchange for the seller marketplace services. The commission and processing fees are recognized net of estimated refunds when the corresponding transaction is confirmed by the buyer and seller. The Company does not take title to inventory sold or assume risk of loss at any point in time during the transaction and is authorized to collect consideration from the buyer and remit net consideration to the seller to facilitate the processing of the confirmed purchase transaction. The Company currently records processing fees from its merchant service providers as a component of Cost of sales - services on the condensed consolidated statement of operations.
Advertising services
The Company enters into advertising subscription arrangements with its customers. Revenue is recognized over-time as the ads are displayed over the subscription period. The Company is providing a service and the service is being consumed by the customer simultaneously over the period of service. In general, the Company reports advertising revenue on a gross basis, since the Company controls the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory before it is transferred to customers.
The Company also sells push notifications and email blasts and recognizes revenue at a point in time when delivered. Push notifications and email blasts are considered delivered when an ad is displayed to users. When a customer enters into an advertising subscription arrangement that includes push notifications and/or email blasts, the Company allocates a portion of the total consideration to the push notification and email blast performance obligations based on the residual approach.
[2] Brand Sales
Product sales
The Company generates revenue through the sale of diapers and wipes to consumers by way of the Company’s Platform and EveryLife’s website. Additionally, EveryLife provides discounted products to non-profit organizations through bulk sales. The Company considers customer orders to be the contracts with the customer. There is a single performance obligation, which is the Company’s promise to transfer its product to customers based on specific payment and shipping terms in the arrangement. The entire transaction price is allocated to this single performance obligation. Product revenue is recognized when a customer obtains control of the product, which occurs at shipment. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products.
The Company evaluated principal versus agent considerations to determine whether it is appropriate to record third-party logistics provider fees paid as an expense. These fees are recorded as shipping and handling expenses within cost of goods sold and are not recorded as a reduction of revenue because the Company owns and controls all the goods before they are transferred to the customer. The Company can, at any time, direct the third-party logistics provider to return the Company’s inventories to any location specified by the Company. It is the Company’s responsibility to process any returns made by customers directly to logistic providers and the Company retains the back-end inventory risk. Further, the Company is subject to credit risk (i.e., credit card chargebacks), establishes prices of its products, fulfills the goods to the customer and can limit quantities or stop selling the goods at any time.
Product Returns
Consistent with industry practice, the Company generally offers customers a limited right of return for products purchased. The Company reviews its receivables quarterly and records a reserve, if necessary.
[3] Financial Technology
Financing Revenues
The Company principally generates revenue from four activities: revenue from sale of loan and lease contracts, revenue from interest earned on loans, and revenue from retailer discounts and origination fees paid by lending institutions (direct revenue) earned in connection with providing financing on consumer goods. Revenue from the Company’s sales of loans and leases is recognized at a point in time when the Company satisfies a performance obligation by transferring control of the loans and leases to a third party. Interest on loans is calculated by the simple-interest method on daily balances of the principal amount outstanding. Revenue from retailer discounts is recognized at a point in time when the Company satisfies performance obligations by purchasing the contract from the merchant in connection with a merchant-originated consumer financing product. Origination fees from lenders are recognized at time of loan origination.
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Loan Held for Investment, Net
Loans are unsecured and are stated at the amount of unpaid principal. Interest on loans is calculated by the simple-interest method on daily balances of the principal amount outstanding. Accrued interest on loans is discontinued when management believes that, after considering collection efforts and economic and business conditions, the collection of interest is doubtful. The Company’s policy is to stop accruing interest when the loan becomes 120 days’ delinquent.
All interest accrued but not collected for loans that are placed on nonaccrual status or subsequently charged-off is reversed against interest income. Income is subsequently recognized on the cash basis until, in management’s judgment, the borrower’s ability to make periodic principal and interest payments returns and future payments are reasonably assured, in which case the loan is returned to accrual status. The Company classifies its loans as either current or past due. Amounts are considered past due if a scheduled payment is not paid on its due date. The Company does not modify the terms of its existing loans with customers.
Allowance for Credit Losses – Loans Held for Investment
The Company identifies its portfolio segments and measures the allowance for credit losses based on similar economic risk characteristics The allowance for credit losses for each portfolio is determined based on our current estimate of expected credit losses over the remaining contractual term, adjusted for expected prepayments when appropriate, and incorporates evaluations of known and inherent risks in our portfolio, historical credit losses, consumer payment trends, estimates of recoveries, current economic conditions, and reasonable and supportable forecasts. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation.
Goodwill and Acquired Intangible Assets
Goodwill and acquired intangible assets recorded in the Company’s financial statements result from both business combinations. Goodwill represents the excess of the purchase price in a business combination over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized as it is estimated to have an indefinite life. As such, goodwill is subject to an annual impairment test.
The Company allocates goodwill to reporting units based on the expected benefit from the business combination. Reporting units are evaluated when changes in the Company’s operating structure occur, and if necessary, goodwill is reassigned using a relative fair value allocation approach. The Company operates in one operating segment, and this segment is the only reporting unit.
ASC 350, Intangibles-Goodwill and Other (“ASC 350”) requires goodwill to be tested for impairment at least annually or more frequently if events or changes in circumstances indicate that goodwill may be impaired. The Company elects to perform an annual impairment test of goodwill as of December 31 of each year. The accounting guidance gives the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The qualitative assessment considers events and circumstances that might indicate that a reporting unit’s fair value is less than its carrying amount. If it is determined, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is performed.
Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of the respective asset. Each period the Company evaluates the estimated remaining useful lives of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Acquired indefinite-lived intangible assets are not amortized but are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the intangible asset may be impaired.
Capitalized Software
The Company capitalizes costs related to the development of its internal accounting software and certain projects for internal use in accordance with ASC 350 - Intangibles - Goodwill and Other. The Company capitalizes costs to develop its mobile application and website when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed, and the software will be used as intended. Costs incurred during the preliminary planning and evaluation stage of the project and during the post implementation operational stage, including maintenance, are expensed as incurred. Costs incurred for enhancements that are expected to result in additional functionality are capitalized and expensed over the estimated useful life of the upgrades on a per project basis. Amortization is computed on an individual product basis over the estimated economic life of the product using the straight-line method.
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Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic, ASC 815-40, Derivatives and Hedging (“ASC 815-40”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The Company accounts for the Public Warrants (as defined in Note 11) and the Private Placement Warrants (collectively, with the Public Warrants, the “Warrants”) in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed consolidated statements of operations. The Warrants for periods where no observable traded price was available are valued using a binomial lattice model. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price will be used as the fair value as of each relevant date.
Share Based Compensation
The Company recognizes an expense for share-based compensation awards based on the estimated fair value of the award on the date of grant.
The Company accounts for share-based compensation under the provisions of ASC Topic 718. As noted above, ASC Topic 718 requires that share-based payment transactions with employees and non-employees, in certain cases, be recognized in the condensed consolidated financial statements based on their fair value.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized by applying the statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We make estimates, assumptions and judgments to determine its provision for income taxes and also for deferred tax assets and liabilities and any valuation allowances recorded against deferred tax assets. Actual future operating results and the underlying amount and type of income could differ materially from our estimates, assumptions and judgments thereby impacting its financial position and results of operations.
Business Combinations
The Company evaluates whether acquired net assets should be accounted for as a business combination or an asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, the Company applies its judgement to determine whether the acquired net assets meets the definition of a business by considering if the set includes an acquired input, process, and the ability to create outputs.
The Company accounts for business combinations using the acquisition method when it has obtained control. The Company measures goodwill as the fair value of the consideration transferred including the fair value of any non-controlling interest recognized, less the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at their fair value as of the acquisition date. Transaction costs, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
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Any contingent consideration (“Earn-out liabilities”) is measured at fair value at the acquisition date. For contingent consideration that do not meet all the criteria for equity classification, such contingent consideration are required to be recorded at their initial fair value at the acquisition date, and on each balance sheet date thereafter. Changes in the estimated fair value of liability-classified contingent consideration are recognized on the consolidated statements of operations in the period of change.
When the initial accounting for a business combination has not been finalized by the end of the reporting period in which the transaction occurs, the Company reports provisional amounts. Provisional amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date. These adjustments, or recognition of additional assets or liabilities, reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.
Emerging Growth Company Status
In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.
Implications of being a Smaller Reporting Company
Additionally, PSQ is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. PSQ will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of common stock held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter (if PSQ’s annual revenues exceeded $100 million during such completed fiscal year), or (ii) The market value of common stock held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter (if PSQ’s annual revenues did not exceed $100 million during such completed fiscal year). To the extent PSQ takes advantage of such reduced disclosure obligations, it may also make comparison of its financial statements with other public companies difficult or impossible.
Recent Accounting Pronouncements
See Note 3, Summary of Significant Accounting Policies in Part I, Item 1 of this quarterly report on Form 10-Q and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2024.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under Securities Exchange Act of 1934, as amended (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 in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, due solely to the material weakness in our internal control over financial reporting, including controls surrounding the preparation of the unaudited condensed consolidated statement of cash flows. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Management intends to implement remediation steps to improve our disclosure controls and procedures and our internal control over financial reporting. Specifically, we intend to expand and improve our review process for complex transactions. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications, and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control Over Financial Reporting
Except as noted above, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period from January 1, 2024 through March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are not party to any material legal proceedings. From time to time, we may be involved in legal proceedings or subject to claims incident to the ordinary course of business. The outcome of litigation is inherently uncertain, and there can be no assurances that favorable outcomes will be obtained. In addition, regardless of the outcome, such proceedings or claims can have an adverse impact on us, which may be material because of defense and settlement costs, diversion of resources and other factors.
Item 1A. Risk Factors.
The risks described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 could materially and adversely affect our business, financial condition, results of operations, cash flows, future prospects, and the trading price of our Class A Common Stock. The risks and uncertainties described therein are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial may also become important factors that adversely affect our business.
You should carefully read and consider such risks, together with all of the other information in our Annual Report on Form 10-K for the year ended December 31, 2023, in this Quarterly Report on Form 10-Q (including the disclosures in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our condensed consolidated financial statements and related notes), and in the other documents that we file with the SEC.
There have been no material changes from the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) During the quarter ended March 31, 2024, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K.
(b) Not applicable.
(c) None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
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Item 5. Other Information.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Form 10-Q.
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| * | Filed herewith. |
| ** | Furnished herewith. |
| # | Indicates a management contract or compensatory plan, contract or arrangement. |
| † | Schedules and similar attachments to this Exhibit have been omitted pursuant to Item 601(a)(5) of Registration S-K. The Company hereby agrees to furnish a copy of any omitted schedules to the SEC upon request. |
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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.
| PSQ Holdings, Inc. | ||
| Date: May 15, 2024 | /s/ Michael Seifert | |
| Name: | Michael Seifert | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: May 15, 2024 | /s/ Bradley Searle | |
| Name: | Bradley Searle | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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