Ww International, Inc 8-K/A, filed Jun 23, 2023
Ww International, Inc. (WW)
About this 8-K/A
Ww International, Inc filed this 8-K/A on June 23, 2023, reporting on events of April 10, 2023.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Introductory Note.
| Item 9.01. | Financial Statements and Exhibits. |
(a) Financial statements of business acquired
The audited consolidated financial statements of Weekend Health as of and for the years ended December 31, 2022 and 2021 are filed herewith as Exhibit 99.1 and incorporated herein by reference.
The unaudited consolidated financial statements of Weekend Health as of and for the three months ended March 31, 2023 and 2022 are filed herewith as Exhibit 99.2 and incorporated herein by reference.
(b) Pro forma financial information
The unaudited Pro Forma Condensed Combined Financial Information of WW International, Inc. and Subsidiaries as of April 1, 2023, for the year ended December 31, 2022, and for the three months ended April 1, 2023 is filed herewith as Exhibit 99.3 and incorporated herein by reference.
(d) Exhibits
| Exhibit |
Description | |
| Exhibit 23.1 | Consent of Independent Auditors | |
| Exhibit 99.1 | Audited consolidated financial statements of Weekend Health as of and for the years ended December 31, 2022 and 2021 | |
| Exhibit 99.2 | Unaudited consolidated financial statements of Weekend Health as of and for the three months ended March 31, 2023 and 2022 | |
| Exhibit 99.3 | ||
| Exhibit 104 | The cover page from this Current Report on Form 8-K/A, formatted in Inline XBRL. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WW INTERNATIONAL, INC. | ||||||
| DATED: June 22, 2023 | By: | /s/ Heather Stark | ||||
| Name: | Heather Stark | |||||
| Title: | Chief Financial Officer | |||||
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-256264, 333-238154, 333-219779, 333-217835, 333-165637, 333-156185, 333-195800, 333-208067, and 333-264723) of WW International, Inc. of our report dated June 22, 2023 relating to the consolidated financial statements of Weekend Health, Inc., which appears in Amendment No. 1 of this Current Report on Form 8-K/A.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
June 22, 2023
Exhibit 99.1
WEEKEND HEALTH, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
WEEKEND HEALTH, INC.
TABLE OF CONTENTS
| Page No. | ||||
| Report of Independent Auditors | 2 | |||
| Consolidated Balance Sheets at December 31, 2022 and December 31, 2021 | 4 | |||
| Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and December 31, 2021 | 5 | |||
| Consolidated Statements of Changes in Preferred Stock and Stockholders’ Deficit for the years ended December 31, 2022 and December 31, 2021 | 6 | |||
| Consolidated Statements of Cash Flows for the years ended December 31, 2022 and December 31, 2021 | 7 | |||
| Notes to Consolidated Financial Statements | 8-17 | |||
1
Report of Independent Auditors
To Management and the Board of Directors of WW International, Inc.
Opinion
We have audited the accompanying consolidated financial statements of Weekend Health, Inc. and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of changes in preferred stock and stockholders’ deficit, and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are available to be issued.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
PricewaterhouseCoopers LLP, 400 Campus Drive, P.O. Box 988, Florham Park, NJ 07932
T: (973) 236 4000, www.pwc.com/us
2
In performing an audit in accordance with US GAAS, we:
| • | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| • | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. |
| • | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| • | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. |
| • | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Florham Park, New Jersey
June 22, 2023
3
WEEKEND HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2022 AND 2021
(IN THOUSANDS)
| December 31, 2022 | December 31, 2021 | |||||||
| ASSETS |
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| CURRENT ASSETS |
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| Cash and cash equivalents |
$ | 26,104 | $ | 5,026 | ||||
| Receivables |
220 | — | ||||||
| Prepaid expenses and other current assets |
183 | 10 | ||||||
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| TOTAL CURRENT ASSETS |
26,507 | 5,036 | ||||||
| Property and equipment, net |
18 | — | ||||||
| Capitalized software, net |
487 | 65 | ||||||
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| TOTAL ASSETS |
$ | 27,012 | $ | 5,101 | ||||
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| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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| CURRENT LIABILITIES |
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| Simple agreement for future equity notes |
$ | — | $ | 7,106 | ||||
| Accounts payable |
219 | 39 | ||||||
| Accrued expenses |
772 | 9 | ||||||
| Deferred revenue |
1,045 | — | ||||||
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| TOTAL CURRENT LIABILITIES |
2,036 | 7,154 | ||||||
| Other liabilities |
11 | — | ||||||
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| TOTAL LIABILITIES |
2,047 | 7,154 | ||||||
| Preferred stock, $0.00001 par value; 5,896 shares authorized and 5,883 shares issued at December 31, 2022 and 0 shares issued at December 31, 2021 |
45,161 | — | ||||||
| STOCKHOLDERS’ DEFICIT |
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| Common stock, $0.00001 par value; 16,400 shares authorized; 8,063 shares issued at December 31, 2022 and 8,580 shares issued at December 31, 2021 |
1 | — | ||||||
| Accumulated deficit |
(20,197 | ) | (2,053 | ) | ||||
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| TOTAL STOCKHOLDERS’ DEFICIT |
(20,196 | ) | (2,053 | ) | ||||
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| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
$ | 27,012 | $ | 5,101 | ||||
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The accompanying notes are an integral part of the consolidated financial statements.
4
WEEKEND HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(IN THOUSANDS)
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues, net |
$ | 6,282 | $ | — | ||||
| Cost of revenues |
3,605 | 16 | ||||||
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| Gross profit (loss) |
2,677 | (16 | ) | |||||
| Selling, general and administrative expenses |
5,080 | 424 | ||||||
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| Operating loss |
(2,403 | ) | (440 | ) | ||||
| Loss on revaluation of simple agreement for future equity notes |
15,078 | 1,606 | ||||||
| Interest income, net |
(17 | ) | — | |||||
| Other income, net |
(13 | ) | — | |||||
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| Loss before income taxes |
(17,451 | ) | (2,046 | ) | ||||
| Provision for income taxes |
9 | — | ||||||
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| Net loss |
$ | (17,460 | ) | $ | (2,046 | ) | ||
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| Comprehensive loss |
$ | (17,460 | ) | $ | (2,046 | ) | ||
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The accompanying notes are an integral part of the consolidated financial statements.
5
WEEKEND HEALTH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(IN THOUSANDS)
| Shareholders’ Deficit | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Deficit | Total | |||||||||||||||||||
| Balance at December 31, 2020 |
— | $ | — | 9,000 | $ | — | $ | 2 | $ | 2 | ||||||||||||||
| Comprehensive loss |
— | — | — | — | (2,046) | (2,046) | ||||||||||||||||||
| Repurchase of common stock |
— | — | (420) | — | (9) | (9) | ||||||||||||||||||
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| Balance at December 31, 2021 |
— | $ | — | 8,580 | $ | — | $ | (2,053) | $ | (2,053) | ||||||||||||||
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| Comprehensive loss |
— | $ | — | — | $ | — | $ | (17,460) | $ | (17,460) | ||||||||||||||
| Repurchase of common stock |
— | — | (186) | — | — | — | ||||||||||||||||||
| Vesting of early exercise of stock options |
— | — | 38 | 1 | — | 1 | ||||||||||||||||||
| Issuance of preferred stock |
2,580 | 19,677 | — | — | — | — | ||||||||||||||||||
| Conversion from common shares to preferred stock |
369 | 2,850 | (369) | — | (972) | (972) | ||||||||||||||||||
| Conversion of SAFE notes |
2,934 | 22,634 | — | — | — | — | ||||||||||||||||||
| Compensation expense on stock-based awards |
— | — | — | — | 288 | 288 | ||||||||||||||||||
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| Balance at December 31, 2022 |
5,883 | $ | 45,161 | 8,063 | $ | 1 | $ | (20,197) | $ | (20,196) | ||||||||||||||
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The accompanying notes are an integral part of the consolidated financial statements.
6
WEEKEND HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(IN THOUSANDS)
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For the year ended December 31, |
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| 2022 | 2021 | |||||||
| Operating activities: |
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| Net loss |
$ | (17,460) | $ | (2,046) | ||||
| Adjustments to reconcile net loss to cash provided by (used for) operating activities: |
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| Depreciation and amortization |
84 | — | ||||||
| Stock-based compensation expense |
2,168 | — | ||||||
| Loss on change in fair value of simple agreement for future equity notes |
15,078 | 1,606 | ||||||
| Changes in cash due to: |
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| Receivables |
(220) | — | ||||||
| Prepaid expenses and other current assets |
(89) | (10) | ||||||
| Accounts payable |
95 | 39 | ||||||
| Accrued liabilities |
631 | 9 | ||||||
| Income taxes |
(86) | — | ||||||
| Deferred revenue |
1,045 | — | ||||||
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| Cash provided by (used for) operating activities |
1,246 | (402) | ||||||
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| Investing activities: |
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| Capital expenditures |
(20) | — | ||||||
| Capitalized software expenditures |
(504) | (65) | ||||||
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| Cash used for investing activities |
(524) | (65) | ||||||
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| Financing activities: |
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| Financing costs |
(6) | (7) | ||||||
| Preferred stock issuances |
19,900 | — | ||||||
| Common stock issuances |
12 | — | ||||||
| Simple agreement for future equity notes issuances |
450 | 5,500 | ||||||
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| Cash provided by financing activities |
20,356 | 5,493 | ||||||
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| Net increase in cash and cash equivalents |
21,078 | 5,026 | ||||||
| Cash and cash equivalents, beginning of period |
5,026 | — | ||||||
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| Cash and cash equivalents, end of period |
$ | 26,104 | $ | 5,026 | ||||
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| Noncash cash flow disclosure: |
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| Conversion of simple agreements for future equity notes to preferred shares |
$ | 22,185 | $ | — | ||||
| Recognition of simple agreement for future equity notes to liabilities |
$ | 15,078 | $ | 1,606 | ||||
| Conversion of common shares to preferred stock |
$ | 972 | $ | — | ||||
The accompanying notes are an integral part of the consolidated financial statements.
7
WEEKEND HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 1. | Organization |
Nature of Business and Organization
Weekend Health, Inc., doing business as Sequence and founded in 2021, is a Delaware corporation with its principal executive offices in San Francisco, California. Weekend Health, Inc. provides a technology powered care platform and mobile web application through its subscription-based service, which includes a comprehensive weight management program, pharmacotherapy treatment, nutrition plans, health insurance coordination services, and access to clinicians, dietitians, fitness coaches and care coordinators.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of Weekend Health, Inc., and the accounts of variable interest entities of which Weekend Health, Inc. is the primary beneficiary (see “Variable Interest Entities” below) (together, “we,” “its,” “our,” “us,” “the Company,” or “Weekend Health”). The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All material intercompany transactions and accounts are eliminated in consolidation.
Variable Interest Entities
The Company evaluates its ownership, contractual and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available information. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that Weekend Health, Inc. is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change.
The Company operates certain clinical telehealth groups which are deemed to be Friendly-Physician Entities (“FPEs”) and due to legal requirements, the physician-owners must retain 100% of the equity interest. The Company’s agreements with FPEs generally consist of both an Administrative Service Agreement, which provide for various administrative and management services to be provided by the Company to the FPE, and Stock Transfer Restriction (“STR”) agreements with the physician-owners of the FPEs, which provide for the transition of ownership interest of the FPEs under certain conditions. The Company has the right to receive income as an ongoing management fee, which effectively absorbs all of the residual interests and can also provide financial support through loans to the FPEs. The Company has exclusive responsibility for the provision of all nonmedical services including technology and intellectual property required for the day-to-day operation and management of each of the FPEs. In addition, the STR provides that the Company has the right to designate a person(s) to purchase the equity interest of the FPE for a nominal amount in the event of a succession event at the Company’s discretion. Based on the provisions of these agreements, the Company determined that the FPEs are VIEs due to its equity holder having insufficient capital at risk, and the Company has a variable interest in the FPEs.
The contractual arrangements described above allow Weekend Health, Inc. to direct the activities that most significantly affect the economic performance of the FPEs. Accordingly, Weekend Health, Inc. is the primary beneficiary of the FPEs and consolidates the FPEs under the VIE model. Furthermore, as a direct result of nominal initial equity contributions by the physicians, the financial support the Company can provide to the FPEs (e.g., loans) and the provisions of the contractual arrangements and nominee shareholder succession arrangements described above, the interests held by noncontrolling interest holders lack economic substance and do not provide them with the ability to participate in the residual profits or losses generated by the FPEs. Therefore, all income and expenses recognized by the FPEs are consolidated by the Company. The Company does not hold interests in any VIEs for which the Company is not deemed to be the primary beneficiary.
After the elimination of intercompany transactions and balances, the net aggregated carrying value of the current VIE assets and liabilities included in the consolidated balance sheet as of December 31, 2022 was $7 and $1,045, respectively. Total revenues and operating expenses were $6,282 and $2,021, respectively, as of December 31, 2022. There was no revenue as of December 31, 2021. There were operating expenses of $16 as of December 31, 2021.
8
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other factors and assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. While all available information has been considered, actual amounts could differ from these estimates. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company’s results of operations, financial position and liquidity. Significant estimates were provided for simple agreements for future equity notes, depreciation and amortization and stock-based compensation.
Cash and Cash Equivalents
Cash and cash equivalents are defined as highly liquid investments with original maturities of three months or less. Cash balances may, at times, exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions. At December 31, 2022 and December 31, 2021, cash and cash equivalents primarily consists of cash balances at the bank and within money market and mutual fund accounts.
Liquidity
For the year ended December 31, 2022, the Company generated cash flows from operations of approximately $1,246. In fiscal 2022, the Company issued 2,949 shares of Preferred Stock Series A for net aggregate cash proceeds of $19,894. In fiscal 2021, the Company issued SAFE Notes (defined below) for net aggregate cash proceeds of $5,500. As of December 31, 2022 and December 31, 2021, the Company had a cash on hand balance of $26,104 and $5,026, respectively. The Company believes it has sufficient cash to operate as a going concern for at least the next twelve months from the date the financial statements were issued.
Revenue Recognition
Contracts and Performance Obligations
The Company’s revenue is derived from contracts with customers, and the appropriate accounting treatment is determined for each contract at its inception. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In accordance with ASC 606, revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.
The Company earns revenue from initial consultations that are conducted to determine if a prospective member is eligible to join a subscription program and from subscriptions for the Company’s science-based weight loss programs, for which it charges a fee, predominantly through monthly commitment plans and prepayment plans.
One-time initial consultation fees are recorded as revenue at the point in time control is transferred, which is when initial consultation takes place. Commitment plan revenues and prepaid subscription fees are recorded to deferred revenue and amortized into revenue on a straight-line basis as control is transferred over the period earned since these performance obligations are satisfied over time. Discounts to customers are recorded as a deduction from gross revenue in the period such revenue was recognized.
9
Disaggregation of Revenue
Revenue consisted of the following:
| December 31, 2022 | ||||
| Subscriptions, net |
$ | 4,653 | ||
| Initial consultations |
1,629 | |||
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| Total revenue |
$ | 6,282 | ||
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For subscription revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable.
The ending balance of the Company’s deferred revenues at December 31, 2022 was $1,045. The Company did not have any deferred revenue at December 31, 2021.
Credit Risk
The Company’s credit risk primarily arises from trade receivables. Collateral is not required for accounts receivable. As of December 31, 2022, the Company’s payment processor represented 100% of outstanding receivables. The Company did not have any outstanding receivables at December 31, 2021.
Allowance for Doubtful Accounts
Accounts receivable are stated at the amount due from customer accounts net of allowance for doubtful accounts. The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with delinquent accounts. Management periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Recoveries of receivables previously written off, if any, are recorded when received.
The Company did not have an allowance for doubtful accounts at December 31, 2022 and December 31, 2021.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization expense is calculated using the straight-line method over the following estimated useful lives:
| Description |
Estimated Useful Life | |||
| Computers, equipment and software |
5 years | |||
| Furniture and fixtures |
7 years | |||
When assets are retired or otherwise disposed of, the cost and related depreciation are removed from the accounts and any related gains or losses are included in income.
Other Intangible Assets
Software development costs are accounted for in accordance ASC 350-40, “Internal-Use Software.” The Company expenses all software costs incurred during the preliminary project stage and capitalizes all internal and external direct costs of materials and services consumed in developing software once the development has reached the application development stage as Capitalized software on the consolidated balance sheets. Application development stage costs generally include software configuration, coding, installation to hardware and testing. These costs are amortized over their estimated useful life of 3 years. All costs incurred for upgrades, maintenance and enhancements, including the cost of website content, which do not result in additional functionality, are expensed as incurred.
Amortization is calculated over the estimated economic life of the software, typically three years. Amortization begins when the software is substantially completed for its intended use. Software development costs are evaluated for recoverability whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
10
The Company capitalized approximately $504 and $65 for the years ending December 31, 2022 and December 31, 2021, respectively. The Company recorded $82 in amortization for the year ended December 31, 2022 associated with capitalized internally developed software costs. There was no amortization for the year ended December 31, 2021.
Selling, General and Administrative Costs
Selling, general and administrative costs consist primarily of corporate advertising and marketing costs, professional fees, office supplies, stock-based compensation and all other administrative related expenses. General and administrative costs are expensed as incurred.
Advertising
The Company expenses the cost of advertising as incurred. For the years ended December 31, 2022 and December 31, 2021, advertising expense totaled $706 and $66, respectively.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which requires the use of the asset and liability method for calculating deferred taxes. Deferred tax assets and liabilities are recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, as well as for operating losses and tax credits that can be carried forward. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized.
The Company also follows the guidance of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” when recognizing the tax benefits of uncertain tax positions. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the position will be sustained upon examination by taxing authorities. The amount of the benefit recognized is the largest amount that has a greater than 50% likelihood of being realized. Any uncertain tax positions that do not meet this threshold are recorded as a liability for uncertain tax benefits.
The Company’s tax returns are subject to examination by the Internal Revenue Service and other taxing authorities. The Company believes that it has adequately provided for any potential adjustments that may arise from such examinations. The Company has not identified any uncertain tax positions that would require recognition or disclosure in the financial statements as of December 31, 2022 and December 31, 2021.
Stock-Based Compensation
The Company issues stock options to employees in exchange for services and accounts for the issuance of these awards in accordance with ASC 718, Compensation – Stock Compensation. The Company’s stock options are equity-classified share-based compensation arrangements. The related compensation expenses are determined based on the grant-date fair value and recognized on a straight-line basis over their vesting period which is generally four years. Forfeitures are recognized as they occur.
Stock-based compensation totaled $288 for the year ended December 31, 2022. There were no stock-based compensation expenses for the year ended December 31, 2021.
Simple Agreement for Future Equity Notes
In 2022 and 2021, the Company entered into Simple Agreements for Future Equity Notes (“SAFE Notes”) with several third-party investors to raise capital. The SAFE Notes are not legal form debt and represent contracts of the Company’s own equity. The SAFE Notes are classified as liabilities pursuant to ASC 480 as they are redeemable for cash or other assets contingent on certain events that are outside of the Company’s control. The Company initially recognizes the SAFE Notes as liabilities at fair value and subsequently remeasures the liability at fair value at the end of each reporting period, with any change in fair value recognized in earnings.
The fair value of the SAFE Notes has been estimated using option pricing model and Monte Carlo simulation analyses. This approach incorporates the terms and properties of the SAFE Notes and accounts for the conversion of the SAFE Notes into equity.
11
Fair Value of Financial Instruments
The Company applies the FASB guidance for “Fair Value Measurements.” Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
| Level I | inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access. |
| Level II | inputs are inputs (other than quoted prices included within Level I) that are observable for the asset or liability, either directly or indirectly. |
| Level III | inputs are unobservable inputs for the asset or liability and rely on management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. |
The carrying values of the Company’s financial instruments such as cash, accounts payable, accrued expenses, and deferred revenue approximate their respective fair values because of the short-term nature of those financial instruments.
Related Party Transactions
Parties are considered to be related to Weekend Health, Inc. if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with Weekend Health, Inc. Related parties also include principal stockholders of Weekend Health, Inc., its management, members of the immediate families of principal stockholders of Weekend Health, Inc. and its management and other parties with which Weekend Health, Inc. may deal where one-party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company has not identified any new accounting standards that had or are expected to have a material impact on the Company’s financial statements.
| 3. | Property and Equipment |
Property and equipment consisted of the following:
| December 31, 2022 | ||||
| Computer equipment |
$ | 20 | ||
|
|
|
|||
| Total property and equipment |
20 | |||
| Less: Accumulated depreciation |
(2 | ) | ||
|
|
|
|||
| Total property and equipment, net |
$ | 18 | ||
|
|
|
|||
For the year ended December 31, 2022, depreciation expense amounted to $2. There was no depreciation expense for the year ended December 31, 2021.
12
| 4. | Capitalized Software |
Capitalized software consisted of the following:
| December 31, 2022 | December 31, 2021 | |||||||
| Capitalized software |
$ | 569 | $ | 65 | ||||
| Less: Accumulated amortization |
(82 | ) | — | |||||
|
|
|
|
|
|||||
| Total capitalized software, net |
$ | 487 | $ | 65 | ||||
|
|
|
|
|
|||||
For the year ended December 31, 2022, amortization expense amounted to $82. There was no amortization expense for the year ended December 31, 2021.
| 5. | Preferred Stock |
Shares of the authorized and unissued Preferred Stock of the Company are comprised as follows:
| Authorized | Issued and Outstanding |
|||||||
| Series A-1 Preferred Stock |
2,700 | 2,700 | ||||||
| Series A-2 Preferred Stock |
234 | 234 | ||||||
| Series A Preferred Stock |
2,962 | 2,949 | ||||||
On December 21, 2022, the Company executed a Convertible Preferred Stock Purchase Agreement (“SPA”), that authorized the sale of up to 2,962 Series A Preferred Stock. On December 22, 2022, the Company issued 2,949 shares of Series A Preferred Stock at a per share price of $7.7148 in exchange for gross proceeds of $19,900. On December 21, 2022, in accordance with the SPA, all outstanding SAFEs converted into 2,700 shares of Series A-1 Preferred Stock at a per share price of $1.9445 and 234 shares of Series A-2 Preferred Stock at a per share price of $2.9916 (together with the Series A Preferred Stock, “Preferred Stock”). The Company incurred issuance costs of $223, which were netted against the proceeds received from the issuance.
The holders of the Company’s convertible Preferred Stock have various rights, preferences, and privileges, including:
| • | Voting rights: Each Preferred Stock member shall have the right to one (1) vote for each common stock into which the Preferred Stock are convertible on the record date of the vote, and with respect to any vote other than any vote with respect to which the holders of common stock have the right to vote as a separate class, such Preferred Stock member shall have full voting rights and powers equal to the voting rights and powers of the common members. |
| • | Dividends: Each share of Preferred Stock shall have the right to non-cumulative dividends at a rate of 6%, when and if declared by the Board of Directors. |
| • | Conversion rights: Each share of Preferred Stock shall be convertible into common stock, at the option of the holder, at any time after the date of issuance of such Preferred Stock at the then applicable conversion rate. The current conversion price is $7.7148 per share for Series A Preferred Stock, $1.9445 per share for Series A-1 Preferred Stock, and $2.9916 per share for Series A-2 Preferred Stock. |
| • | Automatic Conversion rights: Each share of Preferred Stock shall automatically be converted into common stock at the conversion rate at the time in effect for the Preferred Stock immediately upon the earlier of (i) a qualified public offering (as defined in the Company’s Certificate of Incorporation) or (ii) the date specified by written consent or agreement of a majority of the Preferred Stock members. Additionally, in the event of a change in control, if holders of the Series A Preferred Stock receive less than the defined liquidation amount per share, the consent or affirmative vote of majority of the holders of Series A Preferred Stock shall be required for the conversion of the Series A Preferred Stock to common stock. |
| • | Recapitalizations: If at any time or from time to time there shall be a recapitalization of the common stock, the holders of the Preferred Stock will be entitled to receive upon conversion of the Preferred Stock, the number of stock or other securities or property of the Company, to which a holder of common stock deliverable upon conversion would have been entitled on such recapitalization. |
13
| • | Liquidation Preference: Upon any liquidation event, as defined in the Company’s Certificate of Incorporation, funds and assets of the Company available for distribution shall be distributed first to the Preferred Stock members who are entitled to receive an amount equal to the greater of the original issue price of the outstanding Preferred Stock plus any dividends declared but unpaid or such amount per share of Preferred Stock as would have been payable had all Preferred Stock been converted into common stock immediately prior to such liquidation event. |
| • | Redemption: Each Preferred Stock is only redeemable upon a change of control, an event that is outside of the Company’s control. Redemption of the Preferred Stock is not probable and the Preferred Stock is not probable of becoming redeemable (because a change of control event is not probable to occur). |
On December 22, 2022, the Chief Executive Officer and Chief Technology Officer sold 369 shares of common stock to an investor for $2,850. Concurrently, the common stock converted 1:1 into Series A preferred stock. Under ASC 718, the amount in excess of the fair value of the common stock repurchased from employees should be recognized as compensation expense. The fair value of the common stock was determined to be $2.63 per share and therefore $1,880 was recognized as a compensation expense classified in Selling, general and administrative expenses, and the remaining $972 was recorded directly in retained earnings.
The fair value of the common stock as of December 22, 2022, has been estimated using an option pricing model. A summary of significant unobservable inputs (Level 3 inputs) is as follows:
| December 22, 2022 | ||
| Dividend yield |
0.0% | |
| Expected price volatility |
71.0% | |
| Risk-free interest rate |
4.1% | |
| Expected term (in years) |
2.28 |
| 6. | Employee Stock Incentive Plan |
2020 Stock Option and Grant Plan
In 2020, the Company adopted the Weekend Health, Inc. 2020 Stock Option and Grant Plan (the “Plan”), which provides for the grant of stock options to the Company’s officers, employees, directors, consultants and other key persons.
A summary of activity related to stock option is summarized as below:
| Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
||||||||||
| Balance at December 31, 2021 |
— | $ | — | |||||||||
| Options granted |
787 | 0.02 | ||||||||||
| Options forfeited and canceled |
(16 | ) | 0.02 | |||||||||
| Options exercised |
(10 | ) | 0.02 | |||||||||
|
|
|
|
|
|||||||||
| Balance at December 31, 2022 |
761 | $ | 0.02 | 9.56 | ||||||||
|
|
|
|
|
|
|
|||||||
| Exercisable at December 31, 2022 |
64 | $ | 0.02 | 9.45 | ||||||||
|
|
|
|
|
|
|
|||||||
The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2022 was $2.32 per share. The Company recognized $288 of stock-based compensation expense for the year ended December 31, 2022.
For the year ended December 31, 2022, there was $1,520 of unrecognized compensation cost related to non-vested stock options granted under the Plan, which is expected to be recognized over a weighted-average period of approximately 3.3 years.
14
Early exercise of unvested stock options
The Plan permits early exercises of unvested stock options. Shares purchased by grantee pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding shares until those shares vest according to their respective vesting schedules. Any cash consideration received from a grantee upon early exercises of unvested options is included in liabilities on the consolidated balance sheet. Amounts recorded are reclassified to common stock and additional paid-in capital as the shares vest. Vesting can occur in the year of exercise and thereafter. There were 542 unvested shares related to early exercises of stock options as of December 31, 2022.
Stock Option Valuation
The fair value of the stock options has been estimated using an option pricing model and Monte Carlo simulation analyses.
The following table presents key assumptions used in the valuation for the year ended December 31, 2022:
| December 31, 2022 | ||
| Risk-free rate |
1.84% ~ 4.13% | |
| Expected dividend yield |
0% | |
| Holding period (in years) |
2.43 ~ 2.87 | |
| Estimated stock price volatility |
60% ~ 80% |
| 7. | Simple Agreements For Future Equity |
In 2022, the Company received $450 in cash from the issuance of SAFE Notes with a valuation cap of $30,000. In 2021, the Company received $5,250 in cash from the issuance of SAFE Notes with a valuation cap of $19,500 and $250 in cash from the issuance of SAFE notes with a valuation cap of $30,000.
The SAFE Notes provide investors the right to receive shares of preferred stock if a defined equity financing transaction occurs. The number of shares of preferred shares an investor shall receive is equal to the greater of the purchase amount divided by the lowest price per share of the preferred shares sold during an equity financing transaction or the conversion price. The conversion price is determined by dividing the valuation cap by the Company’s capitalization immediately prior to the equity financing transaction.
If there is a liquidity event before the termination of the SAFE Notes, the investors will automatically be entitled to receive a cash payment in an amount that is the greater of the original purchase amount or the value of the Company’s common shares in the number of shares equal to the purchase amount divided by the liquidity price. The liquidity price is determined by dividing the valuation cap by the Company’s capitalization immediately prior to the liquidity event.
If there is a dissolution event before the termination of the SAFE Notes, the investors will automatically receive a cash payment in the amount equal to the purchase amount, due and payable to the investor immediately prior to the consummation of the dissolution event.
On December 21, 2022, the SAFE Notes were settled through the issuance of shares of Series A-1 and Series A-2 Preferred Stock in connection with an equity financing transaction. SAFE Notes with a $19,500 valuation cap were converted into 2,700 shares of Series A-1 Preferred Stock at the price of $7.7148 per share. SAFE Notes with a $30,000 valuation cap were converted into 234 shares of Series A-2 Preferred Stock at the price of $7.7148 per share.
The table below shows the change of the SAFE Notes:
| Amounts | ||||
| Balance at January 1, 2021 |
$ | — | ||
| Issued |
5,500 | |||
| Loss on change in fair value of SAFE Notes |
1,606 | |||
|
|
|
|||
| Balance at December 31, 2021 |
$ | 7,106 | ||
| Issued |
450 | |||
| Loss on change in fair value of SAFE Notes at issuance |
844 | |||
| Loss on change in fair value of SAFE Notes at conversion |
14,234 | |||
| Conversion upon Equity Financing |
(22,634 | ) | ||
|
|
|
|||
| Balance at December 31, 2022 |
$ | — | ||
|
|
|
|||
15
A summary of significant unobservable inputs (Level 3 inputs) used in measuring the SAFE Notes during the years ended December 31, 2022 and 2021 is as follows:
| Year Ended December 31, 2022 |
Year Ended December 31, 2021 | |||
| Dividend yield |
0% | 0% | ||
| Expected price volatility |
60% ~ 79% | 67% ~ 68% | ||
| Risk free interest rate |
1.84% ~ 4.31% | 0.43% ~ 0.76% | ||
| Expected term (in years) |
2.43 ~ 2.87 | 3.26 |
| 8. | Commitments and Contingencies |
Litigation Matters
Due to the nature of the Company’s activities, it is, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
Noncancelable agreements
The Company has no material noncancelable agreements as of December 31, 2022 and December 31, 2021.
| 9. | Income Taxes |
The provision for income taxes for the years ended December 31, 2022 and December 31, 2021 differs from the amount that would be expected based on the statutory tax rates. This is primarily due to changes in the deferred tax valuation allowance and the impact of certain expenses not being deductible for income tax reporting purposes.
Realization of deferred tax assets is dependent on the generation of sufficient future taxable income during the period in which deductible temporary differences and carry-forwards are expected to be available. As of December 31, 2022, the Company had approximately $1,443 of federal net operating loss carryforwards and approximately $148 of state net operating loss carryforwards available to offset future taxable income. The Company provided a full valuation allowance against the deferred tax asset, including its federal and state net operating loss carryforwards, as it is deemed more likely than not that such losses will not be realized.
The net operating loss carryforwards may be subject to further limitations pursuant to Section 382 of the Internal Revenue Code. Management will continue to monitor the realization of the deferred tax asset and will adjust the valuation allowance as necessary based on new information. As of December 31, 2022 and December 31, 2021, the provision for income taxes has been recorded at the expected statutory tax rates on the losses before income taxes, reflecting the full valuation allowance.
16
The effective tax rates for the years ended December 31, 2022 and December 31, 2021 were (0.1%) and 0.0%. The difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate is as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| U.S. federal statutory tax rate |
21.0 | % | 21.0 | % | ||||
| State income taxes (net of federal benefit) |
0.0 | % | 0.2 | % | ||||
| Tax windfall on share-based payments |
1.0 | % | — | |||||
| Change in valuation allowance |
(1.6 | %) | (4.7 | %) | ||||
| Equity mark to market adjustment |
(20.4 | %) | (16.5 | %) | ||||
| Other |
(0.2 | %) | — | |||||
|
|
|
|
|
|||||
| Total effective tax rate |
(0.1 | %) | 0.0 | % | ||||
|
|
|
|
|
|||||
The deferred tax assets recorded on the Company’s consolidated balance sheets are as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| Operating loss carryforwards |
$ | 310 | $ | 96 | ||||
| Salaries and wages |
43 | — | ||||||
| Stock-based compensation |
18 | — | ||||||
| Depreciation |
2 | — | ||||||
| Less: valuation allowance |
(373 | ) | (96 | ) | ||||
|
|
|
|
|
|||||
| Total deferred tax asset, net |
$ | — | $ | — | ||||
|
|
|
|
|
|||||
| 10. | Subsequent Events |
On March 4, 2023, Weekend Health, Inc. entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) to be acquired by WW International, Inc. (“WW International”, and such acquisition, the “Transaction”). As consideration for the Transaction, which closed on April 10, 2023 (“the Closing Date”), WW International agreed to pay an aggregate amount equal to $132,000, subject to the adjustments set forth in the Merger Agreement (the “Merger Consideration”). Subject to the terms and conditions of the Merger Agreement, the Merger Consideration has been paid, or is payable, as follows: (i) approximately $64,217 in cash (inclusive of approximately $25,800 of cash on the balance sheet of Weekend Health, Inc.) and approximately $34,702 in the form of approximately 7,996 newly issued shares of WW International common stock (valued at $4.34 per share), in each case, paid on the Closing Date or promptly thereafter, (ii) $16,000 in cash to be paid on April 10, 2024, and (iii) $16,000 in cash to be paid on April 10, 2025, in each case, subject to the adjustments and deductions set forth in the Merger Agreement.
The Company evaluated all transactions and events, other than those described above, that occurred subsequent to December 31, 2022 to June 22, 2023, the date the financial statements were available to be issued, and concluded that there were no other matters to disclose as required by current guidance for accounting and disclosure of subsequent events.
17
Exhibit 99.2
WEEKEND HEALTH, INC.
FINANCIAL STATEMENTS
MARCH 31, 2023 AND 2022
WEEKEND HEALTH, INC.
TABLE OF CONTENTS
| Page No. | ||||
| Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 |
2 | |||
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2023 and March 31, 2022 |
3 | |||
| Consolidated Statements of Changes in Preferred Stock and Stockholders’ Deficit for the three months ended March 31, 2023 and March 31, 2022 |
4 | |||
| Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and March 31, 2022 |
5 | |||
| Notes to Consolidated Financial Statements |
6-15 | |||
1
WEEKEND HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 2023 AND DECEMBER 31, 2022
(IN THOUSANDS)
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS |
||||||||
| CURRENT ASSETS |
||||||||
| Cash and cash equivalents |
$ | 27,486 | $ | 26,104 | ||||
| Receivables |
342 | 220 | ||||||
| Prepaid expenses and other current assets |
186 | 183 | ||||||
|
|
|
|
|
|||||
| TOTAL CURRENT ASSETS |
28,014 | 26,507 | ||||||
| Property and equipment, net |
30 | 18 | ||||||
| Capitalized software, net |
700 | 487 | ||||||
| Deferred income taxes |
2 | — | ||||||
|
|
|
|
|
|||||
| TOTAL ASSETS |
$ | 28,746 | $ | 27,012 | ||||
|
|
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
| CURRENT LIABILITIES |
||||||||
| Accounts payable |
$ | 190 | $ | 219 | ||||
| Accrued expenses |
1,787 | 772 | ||||||
| Deferred revenue |
1,231 | 1,045 | ||||||
|
|
|
|
|
|||||
| TOTAL CURRENT LIABILITIES |
3,208 | 2,036 | ||||||
| Other liabilities |
10 | 11 | ||||||
|
|
|
|
|
|||||
| TOTAL LIABILITIES |
3,218 | 2,047 | ||||||
| Preferred stock, $0.00001 par value; 5,896 shares authorized and 5,883 shares issued at March 31, 2023 and December 31, 2022 |
45,161 | 45,161 | ||||||
| STOCKHOLDERS’ DEFICIT |
||||||||
| Common stock $0.00001 par value; 16,400 shares authorized; 8,089 shares issued at March 31, 2023 and 8,063 shares issued at December 31, 2022 |
2 | 1 | ||||||
| Accumulated deficit |
(19,635 | ) | (20,197 | ) | ||||
|
|
|
|
|
|||||
| TOTAL STOCKHOLDERS’ DEFICIT |
(19,633 | ) | (20,196 | ) | ||||
|
|
|
|
|
|||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
$ | 28,746 | $ | 27,012 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of the consolidated financial statements.
2
WEEKEND HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(IN THOUSANDS)
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues, net |
$ | 6,457 | $ | 28 | ||||
| Cost of revenues |
3,424 | 43 | ||||||
|
|
|
|
|
|||||
| Gross profit (loss) |
3,033 | (15 | ) | |||||
| Selling, general and administrative expenses |
2,648 | 545 | ||||||
|
|
|
|
|
|||||
| Operating income (loss) |
385 | (560 | ) | |||||
| Interest income, net |
(1 | ) | — | |||||
| Other income, net |
(199 | ) | (2 | ) | ||||
|
|
|
|
|
|||||
| Income (loss) before income taxes |
585 | (558 | ) | |||||
| Provision for income taxes |
118 | 3 | ||||||
|
|
|
|
|
|||||
| Net income (loss) |
$ | 467 | $ | (561 | ) | |||
|
|
|
|
|
|||||
| Comprehensive income (loss) |
$ | 467 | $ | (561 | ) | |||
|
|
|
|
|
|||||
The accompanying notes are an integral part of the consolidated financial statements.
3
WEEKEND HEALTH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(IN THOUSANDS)
Three Months Ended March 31, 2023
| Stockholders’ Deficit | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Deficit | Total | |||||||||||||||||||
| Balance at December 31, 2022 |
5,883 | $ | 45,161 | 8,063 | $ | 1 | $ | (20,197 | ) | $ | (20,196 | ) | ||||||||||||
| Comprehensive income |
— | — | — | — | 467 | 467 | ||||||||||||||||||
| Repurchase of common shares |
— | — | (31 | ) | — | — | — | |||||||||||||||||
| Vesting of early exercise of stock options |
— | — | 57 | 1 | 1 | 2 | ||||||||||||||||||
| Compensation expense on stock-based awards |
— | — | — | — | 94 | 94 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance at March 31, 2023 |
5,883 | $ | 45,161 | 8,089 | $ | 2 | $ | (19,635 | ) | $ | (19,633 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Three Months Ended March 31, 2022
| Stockholders’ Deficit | ||||||||||||||||
| Common Stock | Accumulated | |||||||||||||||
| Shares | Amount | Deficit | Total | |||||||||||||
| Balance at December 31, 2021 |
8,580 | $ | — | $ | (2,053 | ) | $ | (2,053 | ) | |||||||
| Comprehensive loss |
— | — | (561 | ) | (561 | ) | ||||||||||
| Compensation expense on stock-based awards |
— | — | 3 | 3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance at March 31, 2022 |
8,580 | $ | — | $ | (2,611 | ) | $ | (2,611 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
WEEKEND HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(IN THOUSANDS)
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities: |
||||||||
| Net income (loss) |
$ | 467 | $ | (561 | ) | |||
| Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: |
||||||||
| Depreciation and amortization |
49 | — | ||||||
| Stock-based compensation expense |
94 | 3 | ||||||
| Deferred tax provision (benefit) |
(2 | ) | — | |||||
| Changes in cash due to: |
||||||||
| Receivables |
(122 | ) | (1 | ) | ||||
| Prepaid expenses |
(6 | ) | 1 | |||||
| Accounts payable |
56 | (23 | ) | |||||
| Accrued liabilities |
1,033 | 20 | ||||||
| Deferred revenue |
185 | — | ||||||
| Income taxes |
117 | — | ||||||
|
|
|
|
|
|||||
| Cash provided by (used for) operating activities |
1,871 | (561 | ) | |||||
|
|
|
|
|
|||||
| Investing activities: |
||||||||
| Capital expenditures |
(14 | ) | (7 | ) | ||||
| Capitalized software expenditures |
(261 | ) | — | |||||
|
|
|
|
|
|||||
| Cash used for investing activities |
(275 | ) | (7 | ) | ||||
|
|
|
|
|
|||||
| Financing activities: |
||||||||
| Financing costs |
(214 | ) | (2 | ) | ||||
|
|
|
|
|
|||||
| Cash used for financing activities |
(214 | ) | (2 | ) | ||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
1,382 | (570 | ) | |||||
| Cash and cash equivalents, beginning of period |
26,104 | 5,026 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents, end of period |
$ | 27,486 | $ | 4,456 | ||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of the consolidated financial statements.
5
WEEKEND HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| 1. | Organization |
Nature of Business and Organization
Weekend Health, Inc., doing business as Sequence and founded in 2021, is a Delaware corporation with its principal executive offices in San Francisco, California. Weekend Health, Inc. provides a technology powered care platform and mobile web application through its subscription-based service, which includes a comprehensive weight management program, pharmacotherapy treatment, nutrition plans, health insurance coordination services, and access to clinicians, dietitians, fitness coaches and care coordinators.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of Weekend Health, Inc., and the accounts of variable interest entities of which Weekend Health, Inc. is the primary beneficiary (see “Variable Interest Entities” below) (together, “we,” “its,” “our,” “us,” “the Company,” or “Weekend Health”). The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All material intercompany transactions and accounts are eliminated in consolidation.
Variable Interest Entities
The Company evaluates its ownership, contractual and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available information. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that Weekend Health, Inc. is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change.
The Company operates certain clinical telehealth groups which are deemed to be Friendly-Physician Entities (“FPEs”) and due to legal requirements, the physician-owners must retain 100% of the equity interest. The Company’s agreements with FPEs generally consist of both an Administrative Service Agreement, which provide for various administrative and management services to be provided by the Company to the FPE, and Stock Transfer Restriction (“STR”) agreements with the physician-owners of the FPEs, which provide for the transition of ownership interest of the FPEs under certain conditions. The Company has the right to receive income as an ongoing management fee, which effectively absorbs all of the residual interests and can also provide financial support through loans to the FPEs. The Company has exclusive responsibility for the provision of all nonmedical services including technology and intellectual property required for the day-to-day operation and management of each of the FPEs. In addition, the STR provides that the Company has the right to designate a person(s) to purchase the equity interest of the FPE for a nominal amount in the event of a succession event at the Company’s discretion. Based on the provisions of these agreements, the Company determined that the FPEs are VIEs due to its equity holder having insufficient capital at risk, and the Company has a variable interest in the FPEs.
The contractual arrangements described above allow Weekend Health, Inc. to direct the activities that most significantly affect the economic performance of the FPEs. Accordingly, Weekend Health, Inc. is the primary beneficiary of the FPEs and consolidates the FPEs under the VIE model. Furthermore, as a direct result of nominal initial equity contributions by the physicians, the financial support the Company can provide to the FPEs (e.g., loans) and the provisions of the contractual arrangements and nominee shareholder succession arrangements described above, the interests held by noncontrolling interest holders lack economic substance and do not provide them with the ability to participate in the residual profits or losses generated by the FPEs. Therefore, all income and expenses recognized by the FPEs are consolidated by the Company. The Company does not hold interests in any VIEs for which the Company is not deemed to be the primary beneficiary.
After the elimination of intercompany transactions and balances, the net aggregated carrying value of the current VIE assets and liabilities included in the consolidated balance sheet as of March 31, 2023 was $4 and $1,231, respectively, and as of December 31, 2022, were $7 and $1,045, respectively. Total revenues and operating expenses were $6,457 and $1,743, respectively, as of March 31, 2023 and $28 and $42, respectively, as of March 31, 2022.
6
Use of Estimates
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other factors and assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. While all available information has been considered, actual amounts could differ from these estimates. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company’s results of operations, financial position and liquidity. Significant estimates were provided for simple agreements for future equity notes, depreciation and amortization and stock-based compensation.
Cash and Cash Equivalents
Cash and cash equivalents are defined as highly liquid investments with original maturities of three months or less. Cash balances may, at times, exceed insurable amounts. The Company believes it mitigates this risk by investing in or through major financial institutions. At March 31, 2023 and December 31, 2022, cash and cash equivalents primarily consists of cash balances at the bank and within money market and mutual fund accounts.
Liquidity
For the three months ended March 31, 2023, the Company generated cash flows from operations of approximately $1,871 and generated net income of approximately $467. For the year ended December 31, 2022, the Company generated cash flows from operations of approximately $1,246. In fiscal 2022, the Company issued 2,949 shares of Preferred Stock Series A for net aggregate cash proceeds of $19,894. As of March 31, 2023, the Company had a cash on hand balance of $27,486. The Company believes it has sufficient cash to operate as a going concern for at least the next twelve months from the date the financial statements were issued.
Revenue Recognition
Contracts and Performance Obligations
The Company’s revenue is derived from contracts with customers, and the appropriate accounting treatment is determined for each contract at its inception. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In accordance with ASC 606, revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.
The Company earns revenue from initial consultations that are conducted to determine if a prospective member is eligible to join a subscription program and from subscriptions for the Company’s science-based weight loss programs, for which it charges a fee, predominantly through monthly commitment plans and prepayment plans.
One-time initial consultation fees are recorded as revenue at the point in time control is transferred, which is when initial consultation takes place. Commitment plan revenues and prepaid subscription fees are recorded to deferred revenue and amortized into revenue on a straight-line basis as control is transferred over the period earned since these performance obligations are satisfied over time. Discounts to customers are recorded as a deduction from gross revenue in the period such revenue was recognized.
7
Disaggregation of Revenue
Revenue consisted of the following:
| March 31, 2023 | March 31, 2022 | |||||||
| Subscriptions, net |
$ | 5,674 | $ | 9 | ||||
| Initial consultations |
783 | 19 | ||||||
|
|
|
|
|
|||||
| Total revenue |
$ | 6,457 | $ | 28 | ||||
|
|
|
|
|
|||||
For subscription revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable.
The ending balance of the Company’s deferred revenues at March 31, 2023 and December 31, 2022 was $1,231 and $1,045, respectively.
Credit Risk
The Company’s credit risk primarily arises from trade receivables. Collateral is not required for accounts receivable. As of March 31, 2023 and December 31, 2022, the Company’s payment processor represented 100% of outstanding receivables.
Allowance for Doubtful Accounts
Accounts receivable are stated at the amount due from customer accounts net of allowance for doubtful accounts. The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with delinquent accounts. Management periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Recoveries of receivables previously written off, if any, are recorded when received.
The Company did not have an allowance for doubtful accounts at March 31, 2023 and December 31, 2022.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization expense is calculated using the straight-line method over the following estimated useful lives:
| Description |
Estimated Useful Life | |
| Computers, equipment and software | 5 years | |
| Furniture and fixtures | 7 years |
When assets are retired or otherwise disposed of, the cost and related depreciation are removed from the accounts and any related gains or losses are included in income.
Other Intangible Assets
Software development costs are accounted for in accordance ASC 350-40, “Internal-Use Software.” The Company expenses all software costs incurred during the preliminary project stage and capitalizes all internal and external direct costs of materials and services consumed in developing software once the development has reached the application development stage as Capitalized software on the consolidated balance sheets. Application development stage costs generally include software configuration, coding, installation to hardware and testing. These costs are amortized over their estimated useful life of 3 years. All costs incurred for upgrades, maintenance and enhancements, including the cost of website content, which do not result in additional functionality, are expensed as incurred.
Amortization is calculated over the estimated economic life of the software, typically three years. Amortization begins when the software is substantially completed for its intended use. Software development costs are evaluated for recoverability whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
8
The Company capitalized approximately $261 and $504 for the three months ended March 31, 2023 for the year ended December 31, 2022, respectively. The Company recorded $48 and $82 in amortization for the three months ended March 31, 2023 and the year ended December 31, 2022, respectively, associated with capitalized internally developed software costs. The Company did not capitalize any costs or record any amortization for the three months ended March 31, 2022.
Selling, General and Administrative Costs
Selling, general and administrative costs consist primarily of corporate advertising and marketing costs, professional fees, office supplies, stock-based compensation and all other administrative related expenses. General and administrative costs are expensed as incurred.
Advertising
The Company expenses the cost of advertising as incurred. For the three months ended March 31, 2023 and March 31, 2022, advertising expense totaled $37 and $168, respectively.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which requires the use of the asset and liability method for calculating deferred taxes. Deferred tax assets and liabilities are recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, as well as for operating losses and tax credits that can be carried forward. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized.
The Company also follows the guidance of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” when recognizing the tax benefits of uncertain tax positions. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the position will be sustained upon examination by taxing authorities. The amount of the benefit recognized is the largest amount that has a greater than 50% likelihood of being realized. Any uncertain tax positions that do not meet this threshold are recorded as a liability for uncertain tax benefits.
The Company’s tax returns are subject to examination by the Internal Revenue Service and other taxing authorities. The Company believes that it has adequately provided for any potential adjustments that may arise from such examinations. The Company has not identified any uncertain tax positions that would require recognition or disclosure in the financial statements as of December 31, 2022 and December 31, 2021.
Stock-Based Compensation
The Company issues stock options to employees in exchange for services and accounts for the issuance of these awards in accordance with ASC 718, Compensation – Stock Compensation. The Company’s stock options are equity-classified share-based compensation arrangements. The related compensation expenses are determined based on the grant-date fair value and recognized on a straight-line basis over their vesting period which is generally four years. Forfeitures are recognized as they occur.
Stock-based compensation totaled $94 and $3 for the three months ended March 31, 2023 and March 31, 2022, respectively.
Simple Agreement for Future Equity Notes
In 2022 and 2021, the Company entered into Simple Agreements for Future Equity Notes (“SAFE Notes”) with several third-party investors to raise capital. The SAFE Notes are not legal form debt and represent contracts of the Company’s own equity. The SAFE Notes are classified as liabilities pursuant to ASC 480 as they are redeemable for cash or other assets contingent on certain events that are outside of the Company’s control. The Company initially recognizes the SAFE Notes as liabilities at fair value and subsequently remeasures the liability at fair value at the end of each reporting period, with any change in fair value recognized in earnings.
The fair value of the SAFE Notes has been estimated using option pricing model and Monte Carlo simulation analyses. This approach incorporates the terms and properties of the SAFE Notes and accounts for the conversion of the SAFE Notes into equity.
9
Fair Value of Financial Instruments
The Company applies the FASB guidance for “Fair Value Measurements.” Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
| Level I | inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities the Company has the ability to access. |
| Level II | inputs are inputs (other than quoted prices included within Level I) that are observable for the asset or liability, either directly or indirectly. |
| Level III | inputs are unobservable inputs for the asset or liability and rely on management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. |
The carrying values of the Company’s financial instruments such as cash, accounts payable, accrued expenses, and deferred revenue approximate their respective fair values because of the short-term nature of those financial instruments.
Related Party Transactions
Parties are considered to be related to Weekend Health, Inc. if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with Weekend Health, Inc. Related parties also include principal stockholders of Weekend Health, Inc., its management, members of the immediate families of principal stockholders of Weekend Health, Inc. and its management and other parties with which Weekend Health, Inc. may deal where one-party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company has not identified any new accounting standards that had or are expected to have a material impact on the Company’s financial statements.
| 3. | Property and Equipment |
Property and equipment consisted of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Computer equipment |
$ | 32 | $ | 20 | ||||
| Furniture and fixtures |
2 | — | ||||||
|
|
|
|
|
|||||
| Total property and equipment |
34 | 20 | ||||||
| Less: Accumulated depreciation |
(4 | ) | (2 | ) | ||||
|
|
|
|
|
|||||
| Total property and equipment, net |
$ | 30 | $ | 18 | ||||
|
|
|
|
|
|||||
For the three months ended March 31, 2023, depreciation expense amounted to $1. There was no depreciation expense for the three months ended March 31, 2022.
10
| 4. | Capitalized Software |
Capitalized software consisted of the following:
| March 31, 2023 | December 31, 2022 | |||||||
| Capitalized software |
$ | 830 | $ | 569 | ||||
| Less: Accumulated amortization |
(130 | ) | (82 | ) | ||||
|
|
|
|
|
|||||
| Total capitalized software, net |
$ | 700 | $ | 487 | ||||
|
|
|
|
|
|||||
For the three months ended March 31, 2023, amortization expense amounted to $48. There was no amortization expense for the three months ended March 31, 2022.
| 5. | Preferred Stock |
Shares of the authorized and unissued Preferred Stock of the Company are comprised as follows:
| Authorized | Issued and Outstanding |
|||||||
| Series A-1 Preferred Stock |
2,700 | 2,700 | ||||||
| Series A-2 Preferred Stock |
234 | 234 | ||||||
| Series A Preferred Stock |
2,962 | 2,949 | ||||||
On December 21, 2022, the Company executed a Convertible Preferred Stock Purchase Agreement (“SPA”), that authorized the sale of up to 2,962 Series A Preferred Stock. On December 22, 2022, the Company issued 2,949 shares of Series A Preferred Stock at a per share price of $7.7148 in exchange for gross proceeds of $19,900. On December 21, 2022, in accordance with the SPA, all outstanding SAFEs converted into 2,700 shares of Series A-1 Preferred Stock at a per share price of $1.9445 and 234 shares of Series A-2 Preferred Stock at a per share price of $2.9916 (together with the Series A Preferred Stock, “Preferred Stock”). The Company incurred issuance costs of $223, which were netted against the proceeds received from the issuance.
The holders of the Company’s convertible Preferred Stock have various rights, preferences, and privileges, including:
| • | Voting rights: Each Preferred Stock member shall have the right to one (1) vote for each common stock into which the Preferred Stock are convertible on the record date of the vote, and with respect to any vote other than any vote with respect to which the holders of common stock have the right to vote as a separate class, such Preferred Stock member shall have full voting rights and powers equal to the voting rights and powers of the common members. |
| • | Dividends: Each share of Preferred Stock shall have the right to non-cumulative dividends at a rate of 6%, when and if declared by the Board of Directors. |
| • | Conversion rights: Each share of Preferred Stock shall be convertible into common stock, at the option of the holder, at any time after the date of issuance of such Preferred Stock at the then applicable conversion rate. The current conversion price is $7.7148 per share for Series A Preferred Stock, $1.9445 per share for Series A-1 Preferred Stock, and $2.9916 per share for Series A-2 Preferred Stock. |
| • | Automatic Conversion rights: Each share of Preferred Stock shall automatically be converted into common stock at the conversion rate at the time in effect for the Preferred Stock immediately upon the earlier of (i) a qualified public offering (as defined in the Company’s Certificate of Incorporation) or (ii) the date specified by written consent or agreement of a majority of the Preferred Stock members. Additionally, in the event of a change in control, if holders of the Series A Preferred Stock receive less than the defined liquidation amount per share, the consent or affirmative vote of majority of the holders of Series A Preferred Stock shall be required for the conversion of the Series A Preferred Stock to common stock. |
| • | Recapitalizations: If at any time or from time to time there shall be a recapitalization of the common stock, the holders of the Preferred Stock will be entitled to receive upon conversion of the Preferred Stock, the number of stock or other securities or property of the Company, to which a holder of common stock deliverable upon conversion would have been entitled on such recapitalization. |
11
| • | Liquidation Preference: Upon any liquidation event, as defined in the Company’s Certificate of Incorporation, funds and assets of the Company available for distribution shall be distributed first to the Preferred Stock members who are entitled to receive an amount equal to the greater of the original issue price of the outstanding Preferred Stock plus any dividends declared but unpaid or such amount per share of Preferred Stock as would have been payable had all Preferred Stock been converted into common stock immediately prior to such liquidation event. |
| • | Redemption: Each Preferred Stock is only redeemable upon a change of control, an event that is outside of the Company’s control. Redemption of the Preferred Stock is not probable and the Preferred Stock is not probable of becoming redeemable (because a change of control event is not probable to occur). |
On December 22, 2022, the Chief Executive Officer and Chief Technology Officer sold 369 shares of common stock to an investor for $2,850. Concurrently, the common stock converted 1:1 into Series A preferred stock. Under ASC 718, the amount in excess of the fair value of the common stock repurchased from employees should be recognized as compensation expense. The fair value of the common stock was determined to be $2.63 per share and therefore $1,880 was recognized as a compensation expense classified in Selling, general and administrative expenses, and the remaining $972 was recorded directly in retained earnings.
The fair value of the common stock as of December 22, 2022, has been estimated using an option pricing model. A summary of significant unobservable inputs (Level 3 inputs) is as follows:
| December 22, 2022 | ||
| Dividend yield |
0.0% | |
| Expected price volatility |
71.0% | |
| Risk-free interest rate |
4.1% | |
| Expected term (in years) |
2.28 |
| 6. | Employee Stock Incentive Plan |
2020 Stock Option and Grant Plan
In 2020, the Company adopted the Weekend Health, Inc. 2020 Stock Option and Grant Plan (the “Plan”), which provides for the grant of stock options to the Company’s officers, employees, directors, consultants and other key persons.
A summary of activity related to stock option is summarized as below:
| Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
||||||||||
| Balance at December 31, 2022 |
761 | $ | 0.02 | |||||||||
| Options forfeited and cancelled |
(6 | ) | 0.02 | |||||||||
|
|
|
|
|
|
|
|||||||
| Balance at March 31, 2023 |
755 | $ | 0.02 | 9.23 | ||||||||
|
|
|
|
|
|
|
|||||||
| Exercisable at March 31, 2023 |
123 | $ | 0.02 | 8.69 | ||||||||
|
|
|
|
|
|
|
|||||||
| Number of Options |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
||||||||||
| Balance at December 31, 2021 |
— | $ | — | |||||||||
| Options granted |
787 | 0.02 | ||||||||||
| Options forfeited and canceled |
(16 | ) | 0.02 | |||||||||
| Options exercised |
(10 | ) | 0.02 | |||||||||
|
|
|
|
|
|
|
|||||||
| Balance at December 31, 2022 |
761 | $ | 0.02 | 9.56 | ||||||||
|
|
|
|
|
|
|
|||||||
| Exercisable at December 31, 2022 |
64 | $ | 0.02 | 9.45 | ||||||||
|
|
|
|
|
|
|
|||||||
12
There were no stock options granted during the three months ended March 31, 2023. The Company recognized $94 and $3 of stock-based compensation expense for the three months ended March 31, 2023 and March 31, 2022, respectively.
The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2022 was $2.37 per share. The Company recognized $288 of stock-based compensation expense for the year ended December 31, 2022.
As of March 31, 2023, there was $1,407 of unrecognized compensation cost related to non-vested stock options granted under the Plan, which is expected to be recognized over a weighted-average period of approximately 3.0 years.
As of December 31, 2022, there was $1,520 of unrecognized compensation cost related to non-vested stock options granted under the Plan, which is expected to be recognized over a weighted-average period of approximately 3.3 years.
Early exercise of unvested stock options
The Plan permits early exercises of unvested stock options. Shares purchased by grantee pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding shares until those shares vest according to their respective vesting schedules. Any cash consideration received from a grantee upon early exercises of unvested options is included in liabilities on the balance sheet. Amounts recorded are reclassified to common stock and additional paid-in capital as the shares vest. Vesting can occur in the year of exercise and thereafter. There were 484 unvested shares related to early exercises of stock options as of March 31, 2023.
Stock Option Valuation
The fair value of the stock options has been estimated using an Option Pricing Model and Monte Carlo simulation analyses.
The following table presents key assumptions used in the valuation for the year ended December 31, 2022:
| December 31, | ||
| 2022 | ||
| Risk-free rate |
1.84% ~ 4.13% | |
| Expected dividend yield |
0% | |
| Holding period (in years) |
2.43 ~ 2.87 | |
| Estimated stock price volatility |
60% ~ 80% |
| 7. | Simple Agreements For Future Equity |
In 2022, the Company received $450 in cash from the issuance of SAFE Notes with a valuation cap of $30,000. In 2021, the Company received $5,250 in cash from the issuance of SAFE Notes with a valuation cap of $19,500 and $250 in cash from the issuance of SAFE notes with a valuation cap of $30,000.
The SAFE Notes provide investors the right to receive shares of preferred stock if a defined equity financing transaction occurs. The number of shares of preferred shares an investor shall receive is equal to the greater of the purchase amount divided by the lowest price per share of the preferred shares sold during an equity financing transaction or the conversion price. The conversion price is determined by dividing the valuation cap by the Company’s capitalization immediately prior to the equity financing transaction.
If there is a liquidity event before the termination of the SAFE Notes, the investors will automatically be entitled to receive a cash payment in an amount that is the greater of the original purchase amount or the value of the Company’s common shares in the number of shares equal to the purchase amount divided by the liquidity price. The liquidity price is determined by dividing the valuation cap by the Company’s capitalization immediately prior to the liquidity event.
13
If there is a dissolution event before the termination of the SAFE Notes, the investors will automatically receive a cash payment in the amount equal to the purchase amount, due and payable to the investor immediately prior to the consummation of the dissolution event.
On December 21, 2022, the SAFE Notes were settled through the issuance of shares of Series A-1 and Series A-2 Preferred Stock in connection with an equity financing transaction. SAFE Notes with a $19,500 valuation cap were converted into 2,700 shares of Series A-1 Preferred Stock at the price of $7.7148 per share. SAFE Notes with a $30,000 valuation cap were converted into 234 shares of Series A-2 Preferred Stock at the price of $7.7148 per share.
The table below shows the change of the SAFE Notes:
| Amounts | ||||
| Balance at January 1, 2021 |
$ | — | ||
| Issued |
5,500 | |||
| Loss on change in fair value of SAFE Notes |
1,606 | |||
|
|
|
|||
| Balance at December 31, 2021 |
$ | 7,106 | ||
| Issued |
450 | |||
| Loss on change in fair value of SAFE Notes at issuance |
844 | |||
| Loss on change in fair value of SAFE Notes at conversion |
14,234 | |||
| Conversion upon Equity Financing |
(22,634 | ) | ||
|
|
|
|||
| Balance at December 31, 2022 |
$ | — | ||
|
|
|
|||
A summary of significant unobservable inputs (Level 3 inputs) used in measuring the SAFE Notes during the years ended December 31, 2022 is as follows:
| Year Ended | Year Ended | |||
| December 31, 2022 |
December 31, 2021 | |||
| Dividend yield |
0% | 0% | ||
| Expected price volatility |
60% ~79% | 67% ~ 68% | ||
| Risk free interest rate |
1.84% ~ 4.31% | 0.43% ~ 0.76% | ||
| Expected term (in years) |
2.43 ~2.87 | 3.26 |
| 8. | Commitments and Contingencies |
Litigation Matters
Due to the nature of the Company’s activities, it is, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
Noncancelable agreements
The Company has no material noncancelable agreements as of March 31, 2023 and December 31, 2022.
| 9. | Income Taxes |
The provision for income taxes for the three months ended March 31, 2023 and March 31, 2022 differs from the amount that would be expected based on the statutory tax rates. This is primarily due to changes in the deferred tax valuation allowance and the impact of certain expenses not being deductible for income tax reporting purposes.
14
Realization of deferred tax assets is dependent on the generation of sufficient future taxable income during the period in which deductible temporary differences and carry-forwards are expected to be available. As of March 31, 2023, the Company had approximately $1,483 of federal net operating loss carryforwards and approximately $215 of state net operating loss carryforwards available to offset future taxable income. The Company provided a full valuation allowance against the deferred tax asset, including its federal and state net operating loss carryforwards, as it is deemed more likely than not that such losses will not be realized.
The net operating loss carryforwards may be subject to further limitations pursuant to Section 382 of the Internal Revenue Code. Management will continue to monitor the realization of the deferred tax asset and will adjust the valuation allowance as necessary based on new information. As of March 31, 2023 and March 31, 2022, the provision for income taxes has been recorded at the expected statutory tax rates on the losses before income taxes, reflecting the full valuation allowance.
The effective tax rates for the three months ended March 31, 2023 and March 31, 2022 were 20.2% and (0.4%). The difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate is as follows:
| March 31, 2023 | March 31, 2022 | |||||||
| U.S. federal statutory tax rate |
21.0 | % | $ | 21.0 | % | |||
| State income taxes (net of federal benefit) |
(0.1 | %) | 0.2 | % | ||||
| Change in valuation allowance |
(1.9 | %) | (21.6 | %) | ||||
| Other |
1.2 | % | — | |||||
|
|
|
|
|
|||||
| Total effective tax rate |
20.2 | % | (0.4 | %) | ||||
|
|
|
|
|
|||||
The deferred tax assets recorded on the Company’s consolidated balance sheets are as follows:
| March 31, 2023 | December 31, 2022 | |||||||
| Operating loss carryforwards |
$ | 323 | $ | 285 | ||||
| Salaries and wages |
4 | 43 | ||||||
| Stock-based compensation |
35 | 18 | ||||||
| Depreciation |
3 | 2 | ||||||
| Less: valuation allowance |
(363 | ) | (348 | ) | ||||
|
|
|
|
|
|||||
| Total deferred tax asset, net |
$ | 2 | $ | — | ||||
|
|
|
|
|
|||||
| 10. | Agreement and Plan of Merger |
On March 4, 2023, Weekend Health, Inc. entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) to be acquired by WW International, Inc. (“WW International”, and such acquisition, the “Transaction”). As consideration for the Transaction, which closed on April 10, 2023 (“the Closing Date”), WW International agreed to pay an aggregate amount equal to $132,000, subject to the adjustments set forth in the Merger Agreement (the “Merger Consideration”). Subject to the terms and conditions of the Merger Agreement, the Merger Consideration has been paid, or is payable, as follows: (i) approximately $64,217 in cash (inclusive of approximately $25,800 of cash on the balance sheet of Weekend Health, Inc.) and approximately $34,702 in the form of approximately 7,996 newly issued shares of WW International common stock (valued at $4.34 per share), in each case, paid on the Closing Date or promptly thereafter, (ii) $16,000 in cash to be paid on April 10, 2024, and (iii) $16,000 in cash to be paid on April 10, 2025, in each case, subject to the adjustments and deductions set forth in the Merger Agreement.
| 11. | Subsequent Events |
The Company evaluated all transactions and events, other than those described above, that occurred subsequent to March 31, 2023 to June 22, 2023, the date the financial statements were available to be issued, and concluded that there were no other matters to disclose as required by current guidance for accounting and disclosure of subsequent events.
15
Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Information of WW International, Inc. and Subsidiaries as of April 1, 2023, for the year ended December 31, 2022, and for the three months ended April 1, 2023
(in thousands, except for per share amounts)
Introduction
On April 10, 2023 (the “Closing Date”), WW International, Inc., a Virginia corporation (the “Company”) completed its previously announced acquisition of Weekend Health, Inc., doing business as Sequence, a Delaware corporation (“Sequence”), subject to the terms and conditions set forth in the Agreement and Plan of Merger, dated as of March 4, 2023, by and among the Company, Well Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, Sequence, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the Equityholders’ Representative (as defined therein) for Sequence (the “Merger Agreement”), pursuant to which Sequence continued as a wholly-owned subsidiary of the Company (the “Acquisition”). Sequence provides a technology powered care platform and mobile web application through its subscription based service, which includes a comprehensive weight management program, pharmacotherapy treatment, nutrition plans, health insurance coordination services, and access to clinicians, dietitians, fitness coaches and care coordinators.
As consideration for the Acquisition, which closed on April 10, 2023, the Company agreed to pay an aggregate amount equal to $132,000, subject to the adjustments set forth in the Merger Agreement (the “Merger Consideration”). Subject to the terms and conditions of the Merger Agreement, the Merger Consideration has been paid, or is payable, as follows: (i) approximately $64,217 in cash (inclusive of approximately $24,459 of cash on the balance sheet of Sequence) and approximately $34,702 in the form of approximately 7,996 newly issued shares of the Company’s common stock (valued at $4.34 per share), in each case, paid on the Closing Date or promptly thereafter, (ii) $16,000 in cash to be paid on April 10, 2024, and (iii) $16,000 in cash to be paid on April 10, 2025, in each case, subject to the adjustments and deductions set forth in the Merger Agreement.
Pro forma Information
The unaudited pro forma condensed combined statement of operations for the three months ended April 1, 2023 and the year ended December 31, 2022 give pro forma effect to the Acquisition as if it had occurred on January 2, 2022. The unaudited pro forma condensed combined balance sheet as of April 1, 2023 gives pro forma effect to the Acquisition as if it was completed on April 1, 2023.
The unaudited pro forma combined financial information is based on and should be read in conjunction with:
• the accompanying notes to the unaudited pro forma condensed combined financial information;
• the historical audited financial statements of WW International, Inc. as of and for the year ended December 31, 2022, and the related notes;
• the historical audited financial statements of Sequence as of and for the year ended December 31, 2022, and the related notes, filed as exhibits to this Form 8-K/A;
• the historical unaudited financial statements of WW International, Inc. as of and for the three months ended April 1, 2023, and the related notes;
• the historical unaudited financial statements of Sequence as of and for the three months ended March 31, 2023, and the related notes, filed as exhibits to this Form 8-K/A;
The unaudited pro forma condensed combined financial information has been prepared in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Amendments to Financial Disclosures about Acquired and Disposed Businesses, as adopted by the SEC in May 2020 (“Article 11”). The amended Article 11 became effective on January 1, 2021. The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Acquisition occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited transaction accounting adjustments represent management’s estimates based on information available as of the date of this unaudited pro forma condensed combined financial information and are subject to change as additional information becomes available and analyses are performed.
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
APRIL 1, 2023
(IN THOUSANDS)
| WW International, Inc. | Weekend Health, Inc. | Transaction Accounting Adjustments |
Notes (1) | Pro Forma Combined | ||||||||||||||||
| ASSETS |
||||||||||||||||||||
| CURRENT ASSETS |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 140,847 | $ | 27,486 | $ | (64,217 | ) | (a | ) | $ | 104,116 | |||||||||
| Receivables, net |
31,059 | 342 | — | 31,401 | ||||||||||||||||
| Inventories |
10,668 | — | — | 10,668 | ||||||||||||||||
| Prepaid income taxes |
15,337 | — | — | 15,337 | ||||||||||||||||
| Prepaid expenses and other current assets |
37,323 | 186 | — | 37,509 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| TOTAL CURRENT ASSETS |
235,234 | 28,014 | (64,217 | ) | 199,031 | |||||||||||||||
| Property and equipment, net |
25,612 | 30 | — | 25,642 | ||||||||||||||||
| Operating lease assets |
68,962 | — | — | 68,962 | ||||||||||||||||
| Franchise rights acquired |
386,608 | — | — | 386,608 | ||||||||||||||||
| Goodwill |
156,211 | — | 88,989 | (b | ) | 245,200 | ||||||||||||||
| Other intangible assets, net |
64,178 | 700 | 9,113 | (c | ) | 73,991 | ||||||||||||||
| Deferred income taxes |
23,006 | 2 | — | 23,008 | ||||||||||||||||
| Other noncurrent assets |
13,917 | — | — | 13,917 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| TOTAL ASSETS |
$ | 973,728 | $ | 28,746 | $ | 33,885 | $ | 1,036,359 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| LIABILITIES AND TOTAL DEFICIT |
||||||||||||||||||||
| CURRENT LIABILITIES |
||||||||||||||||||||
| Portion of operating lease liabilities due within one year |
$ | 15,464 | $ | — | — | $ | 15,464 | |||||||||||||
| Accounts payable |
21,697 | 190 | — | 21,887 | ||||||||||||||||
| Salaries and wages payable |
64,041 | 128 | — | 64,169 | ||||||||||||||||
| Accrued marketing and advertising |
14,664 | — | — | 14,664 | ||||||||||||||||
| Accrued interest |
10,938 | — | — | 10,938 | ||||||||||||||||
| Other accrued liabilities |
42,288 | 1,659 | 18,424 | (d | ) | 62,371 | ||||||||||||||
| Income taxes payable |
62,058 | — | — | 62,058 | ||||||||||||||||
| Deferred revenue |
35,716 | 1,231 | — | 36,947 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| TOTAL CURRENT LIABILITIES |
266,866 | 3,208 | 18,424 | 288,498 | ||||||||||||||||
| Long-term debt, net |
1,423,329 | — | — | 1,423,329 | ||||||||||||||||
| Long-term operating lease liabilities |
63,783 | — | — | 63,783 | ||||||||||||||||
| Deferred income taxes |
19,940 | — | 1,943 | (e | ) | 21,883 | ||||||||||||||
| Other |
2,079 | 10 | 12,410 | (f | ) | 14,499 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| TOTAL LIABILITIES |
1,775,997 | 3,218 | 32,777 | 1,811,992 | ||||||||||||||||
| Preferred stock |
— | 45,161 | (45,161 | ) | (g | ) | — | |||||||||||||
| TOTAL DEFICIT |
||||||||||||||||||||
| Common stock |
— | 2 | (2 | ) | (g | ) | — | |||||||||||||
| Treasury stock |
(3,093,237 | ) | — | — | (3,093,237 | ) | ||||||||||||||
| Retained earnings |
2,298,701 | (19,635 | ) | 46,271 | (h | ) | 2,325,337 | |||||||||||||
| Accumulated other comprehensive loss |
(7,733 | ) | — | — | (7,733 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| TOTAL DEFICIT |
(802,269 | ) | |
(19,633 |
) |
46,269 | (775,633 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| TOTAL LIABILITIES AND TOTAL DEFICIT |
$ | 973,728 | $ | 28,746 | $ | 33,885 | $ | 1,036,359 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| (1) | See Note 4 to the Notes To The Unaudited Pro Forma Condensed Combined Financial Information for further details. |
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2022
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| WW International, Inc. | Weekend Health, Inc. | Transaction Accounting Adjustments |
Notes (1) | Pro Forma Combined | ||||||||||||||||||||
| Subscription revenues, net |
$ | 919,055 | $ | 6,282 | — | $ | 925,337 | |||||||||||||||||
| Product sales and other, net |
121,801 | — | — | 121,801 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Revenues, net |
1,040,856 | 6,282 | — | 1,047,138 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Cost of subscription revenues |
321,528 | 3,605 | — | 325,133 | ||||||||||||||||||||
| Cost of product sales and other |
96,928 | — | — | 96,928 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Cost of revenues |
418,456 | 3,605 | — | 422,061 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Gross profit |
622,400 | 2,677 | — | 625,077 | ||||||||||||||||||||
| Marketing expenses |
244,783 | 706 | — | 245,489 | ||||||||||||||||||||
| Selling, general and administrative expenses |
263,840 | 4,374 | 11,363 | (a | ) | 279,577 | ||||||||||||||||||
| Franchise rights acquired and goodwill impairments |
396,727 | — | — | 396,727 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Operating loss |
(282,950 | ) | (2,403 | ) | (11,363 | ) | (296,716 | ) | ||||||||||||||||
| Interest expense (income) |
81,141 | (17 | ) | 1,790 | (b | ) | 82,914 | |||||||||||||||||
| Other expense, net |
1,691 | 15,065 | — | 16,756 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Loss before income taxes |
(365,782 | ) | (17,451 | ) | (13,153 | ) | (396,386 | ) | ||||||||||||||||
| Benefit from for income taxes |
(114,379 | ) | 9 | (3,294 | ) | (c | ) | (117,664 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net loss |
$ | (251,403 | ) | $ | (17,460 | ) | $ | (9,860 | ) | $ | (278,723 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net loss per share |
||||||||||||||||||||||||
| Basic |
$ | (3.58 | ) | $ | (3.56 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Diluted |
$ | (3.58 | ) | $ | (3.56 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Weighted average common shares outstanding |
||||||||||||||||||||||||
| Basic |
70,321 | (d | ) | 78,317 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Diluted |
70,321 | (d | ) | 78,317 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| (1) | See Note 4 to the Notes To The Unaudited Pro Forma Condensed Combined Financial Information for further details. |
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 2023
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
| WW International, Inc. | Weekend Health, Inc. | Transaction Accounting Adjustments |
Notes (1) | Pro Forma Combined | ||||||||||||||||||||
| Subscription revenues, net |
$ | 211,032 | $ | 6,457 | — | $ | 217,489 | |||||||||||||||||
| Product sales and other, net |
30,863 | — | — | 30,863 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Revenues, net |
241,895 | 6,457 | — | 248,352 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Cost of subscription revenues |
94,897 | 3,424 | — | 98,321 | ||||||||||||||||||||
| Cost of product sales and other |
27,487 | — | — | 27,487 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Cost of revenues |
122,384 | 3,424 | — | 125,808 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Gross profit |
119,511 | 3,033 | — | 122,544 | ||||||||||||||||||||
| Marketing expenses |
88,234 | 13 | — | 88,247 | ||||||||||||||||||||
| Selling, general and administrative expenses |
59,860 | 2,635 | 868 | (e | ) | 63,363 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Operating (loss) income |
(28,583 | ) | 385 | (868 | ) | (29,066 | ) | |||||||||||||||||
| Interest expense (income) |
22,846 | (1 | ) | 448 | (b | ) | 23,293 | |||||||||||||||||
| Other income, net |
(330 | ) | (199 | ) | — | (529 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (Loss) income before income taxes |
(51,099 | ) | 585 | (1,316 | ) | (51,830 | ) | |||||||||||||||||
| Provision for income taxes |
67,580 | 118 | (329 | ) | (c | ) | 67,369 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net (loss) income |
$ | (118,679 | ) | $ | 467 | $ | (986 | ) | $ | (119,198 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Net loss per share |
||||||||||||||||||||||||
| Basic |
$ | (1.68 | ) | $ | (1.52 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Diluted |
$ | (1.68 | ) | $ | (1.52 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Weighted average common shares outstanding |
||||||||||||||||||||||||
| Basic |
70,596 | (d | ) | 78,592 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Diluted |
70,596 | (d | ) | 78,592 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| (1) | See Note 4 to the Notes To The Unaudited Pro Forma Condensed Combined Financial Information for further details. |
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(in thousands)
Note 1. Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11. The historical financial information of WW International, Inc. and Weekend Health, Inc. has been adjusted in the unaudited pro forma condensed combined financial information to reflect transaction accounting adjustments related to the Acquisition, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
The Company’s and Sequence’s historical financial statements were prepared in accordance with U.S. GAAP and presented in U.S. dollars.
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with the Company as the accounting acquirer, using the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and based on the historical consolidated financial statements of the Company and Sequence. Under ASC 805, all assets acquired and liabilities assumed in a business combination are recognized and measured at their assumed acquisition date fair value, while transaction costs associated with the business combination are expensed as incurred. The excess of Merger Consideration over the estimated fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The allocation of the aggregate Merger Consideration depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the aggregate Merger Consideration has been made for the purpose of developing the unaudited pro forma condensed combined financial information.
Note 2. Accounting Policies
As part of the Acquisition, management is performing a comprehensive review of the entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the entities which, when conformed, could have a material impact on the financial statements of the combined company. Based on its initial analysis, the Company has not identified any changes in accounting policies that would have an impact on unaudited pro forma combined condensed financial information.
Note 3. Preliminary Purchase Price Allocation
The following table shows the preliminary allocation of the purchase price for Weekend Health, Inc. to the acquired identifiable assets, liabilities assumed and goodwill:
| Total consideration: |
||||||||
| Cash paid at closing |
$ | 64,217 | ||||||
| Cash to be paid on April 10, 2024 |
16,000 | |||||||
| Cash to be paid on April 10, 2025 |
12,420 | |||||||
| Total cash payments |
$ | 92,637 | ||||||
| Less stock-based compensation expense attributable to post combination vesting |
(3,883 | ) | ||||||
| Common shares issued |
7,996 | |||||||
| Stock price as of April 10, 2023 (1) |
$ | 4.12 | ||||||
| Total stock issuance purchase price |
32,943 | |||||||
|
|
|
|||||||
| Aggregated merger consideration |
$ | 121,697 | ||||||
|
|
|
|||||||
| Assets acquired: |
||||||||
| Cash |
$ | 27,486 | ||||||
| Receivables |
342 | |||||||
| Prepaid expenses and other current assets |
186 | |||||||
| Property, plant and equipment |
30 | |||||||
| Intangible assets |
9,813 | |||||||
| Deferred income tax |
2 | |||||||
|
|
|
|||||||
| Total assets acquired |
37,859 | |||||||
|
|
|
|||||||
| Liabilities assumed: |
||||||||
| Accounts payable |
$ | 190 | ||||||
| Accrued liabilities |
1,787 | |||||||
| Deferred revenue |
1,231 | |||||||
| Deferred tax liability |
1,943 | |||||||
|
|
|
|||||||
| Total liabilities assumed |
5,151 | |||||||
|
|
|
|||||||
| Net assets acquired |
32,708 | |||||||
|
|
|
|||||||
|
|
|
|||||||
| Total goodwill |
$ | 88,989 | ||||||
|
|
|
| (1) | Represents the fair value of the shares transferred to the sellers, based on the number of shares to be issued, 7,996, multiplied by the closing price of the Company’s ordinary shares on April 10, 2023 of $4.12 per share. |
Note 4. Transaction Accounting Adjustments
The transaction accounting adjustments are based on management’s preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma combined financial information:
Adjustments to the pro forma combined balance sheet:
| (a) | Reflects cash paid for the acquisition by the Company of $39,758 and cash acquired and paid from the balance sheet of Sequence of $24,459. |
| (b) | Reflects the preliminary estimate of goodwill, which represents the excess of the purchase price over the fair value of Weekend Health, Inc.’s identifiable assets acquired and liabilities assumed as presented in Note 3. |
| (c) | Reflects the estimated fair value of intangible assets acquired, net of the elimination of the historical carrying value of capitalized software. |
| Intangible Asset Acquired |
Pro-Forma Balance Sheet Fair Value |
|||
| Customer relationships |
$ | 2,045 | ||
| Developed software |
7,768 | |||
|
|
|
|||
| $ | 9,813 | |||
| Reversal of Sequence historical capitalized software |
(700 | ) | ||
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| Intangible assets pro-forma balance |
$ | 9,113 | ||
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| (d) | Reflects $16,000 of cash payable on April 10, 2024 for the acquisition plus the estimated transaction costs to be incurred subsequent to March 31, 2023 amounting to $2,424. |
| (e) | Reflects the originating deferred taxes resulting from the transaction fair value adjustments of the acquired assets and assumed liabilities based on the applicable statutory tax rate with the respective estimated purchase price allocation. The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-merger activities, including cash needs and changes in tax law. Because the tax rates used for the pro forma financial information are estimated, the blended rate will likely vary from the actual effective rate in periods subsequent to completion of the Acquisition. This determination is preliminary and subject to change based upon the final determination of the fair value of the acquired assets and assumed liabilities. |
| (f) | Reflects $16,000 of cash payable on April 10, 2025 for the acquisition discounted using the Company’s weighted average cost of debt, partially offset by the reversal of a $10 liability related to Weekend Health, Inc. unvested stock option exercises. |
| (g) | Reflects the elimination of Weekend Health, Inc.’s common stock and preferred stock. |
| (h) | Reflects the issuance of WW International, Inc. stock with a value of $32,943 and the elimination of Weekend Health, Inc.’s retained earnings of $19,635 partially offset by stock-based compensation expense attributable to post combination vesting of $3,883 and an accrual for unpaid transaction costs of $2,424. |
Adjustments to the pro forma combined statement of operations:
| (a) | Reflects estimated amortization expense of intangible assets of $4,634 based on the estimated fair value at acquisition date, stock-based compensation expense attributable to post combination vesting of $3,883, transaction costs of $2,424 incurred subsequent to April 1, 2023 and the net impact of the addition of $504 related to payroll expenses that had been capitalized by Weekend Health, Inc. and the reversal of related amortization expense of capitalized software of $82. Transaction costs of $3,504 are included in the historical income statement of the Company for the three months ended April 1, 2023. These costs will not affect the Company’s income statement beyond 12 months after the acquisition date. Refer to the table in note (e) below for further information relating to intangible assets acquired. |
| (b) | Reflects the accretion of interest expense for the period attributable to the discounting of the $16,000 of cash payable on April 10, 2025 using the Company’s weighted average cost of debt. |
| (c) | Reflects the income tax impact of the transaction accounting adjustments utilizing a statutory income tax rate in effect of 25.01% for the year ended December 31, 2022 and the 3 months period ended March 31, 2023. The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-merger activities, including cash needs and changes in tax law. Because the tax rates used for the pro forma financial information are estimated, the blended rate will likely vary from the actual effective rate in periods subsequent to completion of the Acquisition. This determination is preliminary and subject to change based upon the final determination of the fair value of the acquired assets and assumed liabilities. |
| (d) | Reflects the issuance of additional shares in connection with the Acquisition, assuming the shares were outstanding since the beginning of the fiscal year ended December 31, 2022. As the Acquisition is being reflected as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Acquisition have been outstanding for the entire periods presented. |
| (e) | Reflects estimated amortization expense of intangible assets of $647 based on the estimated fair value at acquisition date and the net impact of the addition of $268 related to payroll expenses that had been capitalized by Weekend Health, Inc. and the reversal of related amortization expense of capitalized software of $48. Refer to the table below for further information relating to intangible assets acquired. |
| Pro-Forma |
Useful | Pro-Forma Amortization Expense | ||||||||||||||
| Intangible Asset Acquired |
Balance Sheet Fair Value |
Life (in years) |
Twelve Months Ended December 31, 2022 |
Three Months Ended April 1, 2023 |
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| Customer relationships |
$ | 2,045 | 0.4 | $ | 2,045 | $ | — | |||||||||
| Developed software |
7,768 | 3.0 | 2,589 | 647 | ||||||||||||
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| $ | 9,813 | $ | 4,634 | $ | 647 | |||||||||||
The preliminary estimated fair value and useful life can differ from final amounts and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial information. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill along with an increase in amortization expense of $463 for the twelve months ended December 31, 2022 and $204 for the three months ended April 1, 2023.