PSQ Holdings Inc

Previous wording

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.

Current wording

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 Form 10-K for the year ended December 31, 2023, 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.

Previous wording

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.

Current wording

PSQ Holdings, Inc. (collectively “PublicSquare”, “PSQ”, “PSQH” or the “Company”) is a commerce and payments ecosystem, valuing life, family, and liberty. PublicSquare operates under three segments: Marketplace, Financial Technology, and Brands (“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 comprises Credova, a consumer financing and payments company. PublicSquare’s Brands segment comprises EveryLife, a premium direct-to-consumer (“D2C”) life-affirming baby products company and PSQLink, LLC (“PSQLink”), a digital marketing and customer relationship management (“CRM”) platform.

Previous wording

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.

Current wording

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 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.

Previous wording

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.

Current wording

Prior to the Credova acquisition, 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 closing the Credova acquisition, 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.

Previous wording

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.

Current wording

For 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.

Previous wording

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.

Current wording

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 generated from the Financial Technology segment 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.

Previous wording

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.

Current wording

For the three and six months ended June 30, 2024, GMV was $13.3 million and $30.2 million, respectively, which represented an approximate change of (7)% and 16%, respectively, as compared to the same period in 2023. Overall, the increase for the six months ended June 30, 2024 in GMV was primarily driven by the expansion of our active merchant base and increases in active consumers. The increase in GMV for the six months ended June 30, 2024 also reflected increased consumer demand for our bank originated products. During the three months ended June 30, 2024, our GMV decline mirrored broader industry trends, with National Shooting Sports Foundation (NSSF) reporting-adjusted National Instant Criminal Background Check System (NICS) data showing a 7% drop in background checks, indicating softer market conditions. Despite this, Credova increased its share of overall sales with key retailers, achieving record-high conversion rates among first-time applicants.

Previous wording

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.

Current wording

For the three and six months ended June 30, 2024, our top five merchants and platform partners represented approximately 42% and 41% of total GMV, respectively, as compared to 49% for the three months ended June 30, 2023 and 51% for the six months ended June 30, 2023. GMV attributable to our largest merchant during both the three months and six months ended June 30, 2024 represented 16 % and 16%, respectively, of total GMV, compared to 20% and 18% for the same period in 2023.

Previous wording

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.

Current wording

During the three months ended June 30, 2024 and 2023, our net loss was $11.2 million and $20.7 million, respectively, and during the six months ended June 30, 2024 and 2023, our net loss was $23.8 million and $27.4 million, respectively. During the three months ended June 30, 2024, our net loss decreased $9.5 million as compared to the three months ended June 30, 2023, due to the fact that in 2023 there was a $13.4 million loss for the change in fair value of the convertible promissory notes and in 2024 there was a gain of $3.1 million relating to the change in fair value of the warrant liabilities. This is offset by a $6.8 million increase in our operating loss due to the expansion of the business. During the six months ended June 30, 2024, our net loss decreased $3.6 million as compared to the six months ended June 30, 2023, due to the fact that in 2023 there was a $14.6 million loss for the change in fair value of the convertible promissory notes and in 2024 there was a gain of $5.3 million relating to the change in fair value of the warrant liabilities. This is offset by a $16.2 million increase in our operating loss due to the expansion of the business. 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 June 30, 2024, our accumulated deficit was $86.0 million. Since inception, we have financed our operations primarily through equity raises and operating activities.

Previous wording

Our brand revenues have been derived primarily from our sale of products.

Current wording

Our brand revenues have been derived primarily from our sale of products and services.

Previous wording

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.

Current wording

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 transaction costs related to our Financial Technology segment.

Previous wording

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.

Current wording

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, other than research and development.

Previous wording

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.

Current wording

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 and build the PublicSquare Payments ecosystem.

Previous wording

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.

Current wording

Other income, net primarily relates to dividend income earned on the money market account for the three and six months ended June 30, 2024, and Employee Retention Tax Credit (“ERTC”) and the Research and Development Tax Credit (“R&D Tax Credit”) for the three and six months ended June 30, 2023.

Previous wording

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.

Current wording

The results of operations presented below should be reviewed in conjunction with the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 which can be found elsewhere in this document.

Previous wording

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:

Current wording

The following table sets forth our condensed consolidated statement of operations for the three and six months ended June 30, 2024 and 2023, and the dollar and percentage change between the two periods:

Previous wording

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.

Current wording

Revenues, net increased by $5.5 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was driven by the addition of B2B and product sales of $2.5 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 $0.2 million. Additionally, the Credova Merger accounted for an additional $3.0 million revenue for the three months ended June 30, 2024.

Previous wording

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.

Current wording

Cost of revenue (exclusive of depreciation and amortization) increased by $0.1 million, or 23%, and $0.3 million, or 42%, respectively, for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. The increase was mainly due to an increase in personnel expenses of $0.1 million and $0.3 million, respectively.

Previous wording

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.

Current wording

Cost of goods sold (exclusive of depreciation and amortization) increased by $1.4 million and $2.8 million, respectively, for the three months and six months ended June 30, 2024 compared to the three months and six months ended June 30, 2023. The increase was mainly due to the sale of products.

Previous wording

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.

Current wording

General and administrative expense increased by $7.1 million, or 182%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 The increase was due to a $6.0 million increase in staffing-related costs, including $3.2 million in share-based compensation expense, and $3.6 million increase in other administrative expenses, which include accounting, legal, and other administrative services. This is partially offset by a decrease in IPO transaction costs of $2.5 million.

Previous wording

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.

Current wording

Sales and marketing expense increased by $2.7 million, or 112%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was due to $1.5 million of share-based compensation expense and $1.2 million increase in other marketing and public relation activities.

Previous wording

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.

Current wording

Research and development expense increased by $0.7 million, or 258%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was due to an increase in staffing-related costs in our product and engineering teams including $0.4 million of share-based compensation expense, as well as costs related to computer software, hardware, and other administrative expenses.

Previous wording

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.

Current wording

Depreciation and amortization expense increased $0.2 million or 33% and decreased by an insignificant amount, respectively, for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 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 being amortized over a longer useful life.

Previous wording

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.

Current wording

Other income, net changed by an insignificant amount and $0.1 million, respectively, for the three and six months ended June 30, 2024 compared to the three months and six months ended June 30, 2023, primarily due to interest income earned on the money market accounts.

Previous wording

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.

Current wording

Interest expense, net increased by $0.4 million and $0.5 million, respectively, for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. The increase was due to the interest payable in relation to the convertible promissory notes recorded as of the reporting date.

Previous wording

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.

Current wording

Income tax expense increased by an insignificant amount for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

Previous wording

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.

Current wording

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 has obtained a support letter from a board member and his affiliates, which provides that if the Company fails to (i) raise sufficient capital through rounds of financings, or (ii) secure sufficient operating cash to fund its operating expenses, the board member and his affiliates, subject to such further conditions, and in a form to be mutually determined, would provide the Company funding and financial support necessary to pay for its operating expenses so the Company is able to continue to operate in its normal course of business through August 2025.

Previous wording

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.

Current wording

We believe that as a result of resource reallocation initiatives, additional insider investments, inventory management and line of credit financing, along with its existing cash and cash equivalents and committed affiliated support, that we 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.

Previous wording

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.

Current wording

Our future capital requirements will depend on many factors including our 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, we may need to raise additional financing. While there can be no assurances, we may need to pursue issuances of additional equity raises and debt rounds of financing. If additional financing is required 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 when desired, our business, results of operations and financial condition would be materially and adversely affected.

Previous wording

Comparison of the Three Months Ended March 31, 2024 and 2023

Current wording

Comparison of the Six Months Ended June 30, 2024 and 2023

Previous wording

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.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $16.9 million compared to $10.0 million used in operating activities during the six months ended June 30, 2023. The increase in cash used in operating activities was due to an overall increase in operating expenses, resulting in an increased operating loss of $16.2 million. This was partially offset by an increase in non-cash expenses for share based compensation of $11.1 million. Also offsetting this was a decrease in cash provided by operating assets and liabilities of $1.9 million.

Previous wording

Net Cash Used in Investing Activities

Current wording

Net Cash Provided by (Used in) Investing Activities

Previous wording

Net Cash (Used in) Provided by Financing Activities

Current wording

Net Cash Provided by Financing Activities

Previous wording

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.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024 was $8.2 million as compared to $25.1 million for the six months ended June 30, 2023. Cash provided by financing activities for the months ended June 30, 2024 primarily related to proceeds from the issuance of the convertible note payable of $10.0 million offset by repayments on the line of credit of $1.8 million, compared to $22.5 million of proceeds received for convertible notes payable and $2.6 million of proceeds from the issuance of common stock for the six months ended June 30, 2023.

Previous wording

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.

Current wording

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 and six-month period ended June 30, 2024 included elsewhere in this report. Our critical accounting policies are described below.

Previous wording

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.

Current wording

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 commission revenue earned from these arrangements is 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.

Previous wording

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.

Current wording

The Company principally generates revenue from four activities: revenue from sale of loan and lease contracts, revenue from interest earned on loans, 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.

Previous wording

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.

Current wording

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 Black-Scholes option pricing 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.

Previous wording

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.

Current wording

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 the 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 the Company’s financial position and results of operations.

Previous wording

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.

Current wording

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 judgment to determine whether the acquired net assets meet the definition of a business by considering if the set includes an acquired input, process, and the ability to create outputs.