What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-19 · 105 added, 192 removed, 83 unchanged (78% of the section changed)

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Our actual results could differ materially from those in such forward-looking statements as a result of many factors, including those discussed in “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, our Current Reports on Form 8-K and our other SEC filings.

Fiscal Year End Change

As previously reported, the Company’s Board of Directors has approved a change in the Company’s fiscal year end from December 31 to June 30 of each calendar year.

As a result of the change, the Company intends to file a transition report on Form 10-K for the six-month transition period starting January 1, 2025 and ending June 30, 2025, which is the period between the closing of the Company’s most recent fiscal year on December 31, 2024 and the opening date of the Company’s newly selected fiscal year on July 1, 2025.

During the transition period, the Company has elected to file a quarterly report on Form 10-Q for the quarter ending March 31, 2025, and then expects to file quarterly reports based on the new fiscal year beginning with the first fiscal quarter ending September 30, 2025.

Company Overview

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All prior periods presented have been restated to also present the In-Store Marketing Business as discontinued operations.

On February 22, 2024, the Company acquired majority ownership in Bloomia B.V.

On February 22, 2024 (the “Acquisition Date”), the Company acquired majority ownership in Bloomia B.V.

and its subsidiaries (“Bloomia”).

Bloomia produces and sells fresh-cut tulips.

In April 2023, the Company began the development of a non-bank lending business, through the hiring of a Senior Vice President of Lending, who later became our Chief Executive Officer.

The Company met with a number of prospects for loan originations and/or purchases and deals were negotiated, but none reached execution.

With the Company’s decision to allocate capital to the Bloomia acquisition, significantly less capital was available for the lending business in the near-term.

Promptly after receiving a notice of resignation from the Company’s then-serving Chief Executive Officer in June 2024, our Board of Directors reexamined the Company’s strategic position and prospects.

Primarily because the departing Chief Executive Officer represented nearly all of the Company’s knowledge and expertise relating to the purchase of existing loans and/or origination and funding of new loans, the Company has determined to focus solely on the ag business.

Because the non-bank lending business remained in development, this change is not expected to have a significant adverse impact on the Company’s operations or financial results.

Bloomia Business

Bloomia purchases tulip bulbs, hydroponically grows tulips from the bulbs, and sells the stems to retail stores.

Bloomia is a leading producer of fresh cut tulips in the United States, nurturing over 75 million stems annually.

Net sales (unaudited) of Bloomia for the twelve months ended December 31, 2023 and 2022 were approximately $45 million and $43 million, respectively.

Bloomia was founded in the Netherlands and is now strategically positioned in the United States, Netherlands, South Africa and Chile.

Bloomia has relationships with prominent U.S.

mass market retailers.

The Company acquired Bloomia for total consideration of $53,360,000.

Consideration was comprised of $34,919,000 of cash paid, $15,451,000 of seller bridge loans in lieu of cash, and $2,990,000 of equity issued of Tulp 24.1 which is reflected as noncontrolling interest within these condensed consolidated financial statements.

The acquisition was funded through a combination of debt and cash on hand.

Bloomia was founded in the Netherlands and has grown to become a leader in the fresh cut tulip industry in the U.S.

Bloomia nurtured over 75 million tulip stems in 2024.

Bloomia operates from three strategically positioned locations in the United States, the Netherlands, and South Africa, and also has a 30% interest in a greenhouse business in Chile.

Bloomia operates greenhouses to hydroponically grow tulips at its United States and South Africa locations.

The Company has invested in automation in its U.S.

greenhouse in recent years that has increased production efficiency.

Bloomia has historically sourced tulip bulbs from producers in the Netherlands, Chile, and New Zealand, which provides for year-round supply.

Bulbs from the Southern Hemisphere are generally used from the end of August to early December, with the Northern Hemisphere bulbs used the remainder of the year.

In the United States, Bloomia has established business relationships with prominent retailers.

A small number of mass-market retailers in the U.S.

have historically accounted for more than 99% of Bloomia’s total annual sales.

Bloomia aims to offer premium tulip stems, the result of sourcing larger bulbs, that have a longer shelf life than imported stems.

Growing tulip stems domestically allows for higher margins because the freight costs for importing bulbs by sea have been substantially less than the costs associated with importing stems by air.

In the Netherlands, Bloomia’s office facilitates the sourcing of bulbs, conditioning to prepare bulbs for planting, and shipping of bulbs to its United States and South Africa facilities.

In South Africa, Bloomia’s wholly owned subsidiary operates a greenhouse that has produced an average of approximately 3.5 million tulip stems per year over the last five years.

The facility is capable of growing tulips hydroponically year-round and sells the majority of tulip stems to one retailer.

In Chile, Bloomia has a minority ownership interest in Araucania Flowers S.A.

(“Araucania”).

The operation grows tulips hydroponically year-round.

Araucania traditionally sells to retailers located in Chile and Brazil.

The tulip sales business tends to be seasonal with spring being the strongest sales season.

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Inventory balances peak prior to the spring season.

Former Lending Business

The Company had previously planned to also develop a non-bank lending business via its wholly owned subsidiary, Farmland Credit, Inc.

(“FCI”), and FCI’s subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC.

Primarily because the now departed Chief Executive Officer represented nearly all the Company’s knowledge and expertise relating to the purchase of existing loans and/or origination and funding of new loans, the Company has determined to focus solely on the ag business.

Because the non-bank lending business remained in development, this change is not expected to have a significant adverse impact on the Company’s operations or financial results.

Results of Operations

The following table sets forth, for the periods indicated, certain items in our condensed consolidated statements of operations as a percentage of total net sales.

The following table sets forth, for the periods indicated, certain items in our condensed consolidated statements of operations and comprehensive income (loss) as a percentage of total revenue, net.

Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

Gross profit as a percent of sales

Gross profit as a percent of revenue

Sales, general and administrative expenses

Operating loss

Operating loss as a percent of sales

Operating income (loss)

Operating income (loss) as a percent of revenue

Foreign exchange difference, net

Interest expense (income), net

Other expenses, net

Loss from continuing operations before income taxes

Income tax benefit

Net loss from continuing operations

Interest expense, net

Other expense, net

Income (loss) from continuing operations before income taxes

Income tax expense (benefit)

Net income (loss) from continuing operations

Income from discontinued operations, net of tax

Net (loss) income including noncontrolling interest

Net (loss) income attributable to noncontrolling interest

Net (loss) income attributable to Lendway, Inc.

$ (1,125,000 )

$ (2,803,000 )

Three and Nine Months Ended September 30, 2024 Compared to Three and Nine Months Ended September 30, 2023

Net income (loss) including noncontrolling interest

Net income (loss) attributable to noncontrolling interest

Net income (loss) attributable to Lendway, Inc.

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Revenue, Net.

Revenue, net for the three and nine months ended September 30, 2024 was $6,628,000 and $31,581,000, respectively, all of which were generated from Bloomia for the period from its acquisition on February 22, 2024 (“the acquisition date”) through September 30, 2024 (the “acquisition period”).

The first and second calendar quarters are normally the strongest sales quarters for Bloomia with the first calendar quarter benefiting from Valentine’s Day, Easter season and the start of the Spring season.

Revenue, net for the three months ended March 31, 2025 and 2024 was $12,443,000 and $8,033,000, respectively.

The increase is due to a full quarter of revenue in fiscal year 2025 compared to revenue from the Acquisition Date through March 31, 2024.

Due to the Easter holiday falling in the second calendar quarter of 2025, compared to the first calendar quarter of 2024, management expects revenue in the quarter ending June 30, 2025 to be higher when compared to the same period in 2024.

Gross Profit.

Gross profit for the three months ended September 30, 2024 was $1,440,000 or 22% as a percentage of revenue.

Gross margin percentage is typically higher in the first and second quarters since sales are typically higher and allow better leverage of fixed costs in costs of sales.

Gross profit for the nine months ended September 30, 2024, was $7,091,000.

Gross profit as a percentage of total net revenue was 22% for the nine months ended September 30, 2024.

The amortization of the inventory written up to fair value was $1,522,000 for the nine months ended September 30, 2024.

Gross margin percentage has historically been higher in the first and second quarters since sales are typically higher and allow better leverage of fixed costs in costs of sales.

Operating Expenses

Gross profit for the three months ended March 31, 2025, was $3,889,000 or 31.3% as a percentage of revenue compared to gross profit of $1,744,000 or 21.7% for the three months ended March 31, 2024.

The increase is due to the Acquisition.

In the three months ended March 31, 2024, inventory was written up to fair value on the Acquisition, and $1,360,000 of amortization costs were included in the period.

Gross margin percentage is typically higher in the first and second calendar quarters since sales are typically higher and allow better leverage of fixed costs in costs of sales.

Sales, general and administrative.

Sales, general and administrative expenses for the three months ended September 30, 2024 were $2,791,000 compared to $1,633,000 for the three months ended September 30, 2023.

The increase was primarily due to the acquisition of Bloomia.

Sales, general and administrative expenses for the nine months ended September 30, 2024, were $9,920,000 compared to $2,983,000 for the nine months ended September 30, 2023.

The increases were primarily due to the acquisition of Bloomia, including one-time acquisition-related costs.

Interest Expense and Income.

Interest expense for the three months ended September 30, 2024, was $800,000 compared to interest income of $111,000 for the three months ended September 30, 2023.

In connection with the Bloomia acquisition, the Company began incurring interest expenses starting February 21, 2024.

The Company did not have debt in the prior year.

Sales, general and administrative expenses for the three months ended March 31, 2025 were $2,457,000 compared to $3,388,000 for the three months ended March 31, 2024.

The decrease was primarily due to $1,542,000 of acquisition related costs in the prior year, partially offset by a full quarter of expense in fiscal year 2025 compared to fiscal year 2024.

Interest Expense, net.

Interest expense for the three months ended March 31, 2025 and 2024, was $970,000 and $225,000, respectively.

In connection with the Acquisition, the Company began incurring interest expenses starting February 21, 2024 resulting in higher interest expense in 2025.

The Company did not have debt prior to the Acquisition.

The Company has not hedged the risk of its interest expense.

If the Term SOFR reference rate increases, the Company’s interest expense on its term loan and revolving credit facility will increase.

Interest expense for the nine months ended September 30, 2024, was $1,989,000 compared to interest income of $325,000 for the nine months ended September 30, 2023.

The increase is due to the interest on the debt associated with the acquisition of Bloomia and less short-term investments in the current year.

Income Taxes.

For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of 33.5% and 26.6%, respectively, on loss from continuing operations.

The rate differs from the federal statutory rate of 21.0% due to state taxes of 4.7%, valuation allowance change of 9.3% and nondeductible transaction costs and other permanent items of (8.4)%.

For the three and nine months ended September 30, 2023, the Company recorded an income tax expense of 0.6% and 0.1%, respectively, on loss from continuing operations before income taxes.

The rate differs from the federal statutory rate of 21.0% due to state taxes of 3.5%, valuation allowance change of (24.5)%.

and other permanent items of 0.1%.

For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of $736,000 and $1,284,000, respectively, on the loss from continuing operations before income taxes and equity in net income of equity investment.

The overall benefit of $1,284,000 includes a $451,000 benefit for the reversal of the valuation allowance on federal deferred tax assets.

During the first quarter of 2024, the Company established deferred tax liabilities related to the acquisition in the majority ownership of Bloomia.

For the three months ended March 31, 2025 and 2024, the Company recorded income tax expense of 20.2% and an income tax benefit of 18.9%, respectively, on income (loss) from continuing operations.

During the quarter ended March, 31 2024, the Company established deferred tax liabilities related to the acquisition in the majority ownership of Bloomia.

The Company anticipates that the deferred tax liabilities will result in future taxable income that will allow for the realization of the federal deferred tax assets.

As of September 30, 2024, and December 31, 2023, the Company had unrecognized tax benefits totaling $35,000 and $43,000, respectively, including interest, which relates to state nexus issues.

The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $35,000.

See Note 11 in the condensed consolidated financial statements.

Income from Discontinued Operations, Net of Tax.

For the three and nine months ended September 30, 2024, income from discontinued operations is a result of the reduction in the accrual for sales tax due to the expiration of the statute of limitations.

Income from discontinued operations, net of tax, for the three and nine months ended September 30, 2023 reflects results from operations from the legacy In-store Marketing Business and the $2,970,000 gain from the sale of that business.

Information on the sale of the In-Store Marketing Business and statement of operations details of the discontinued operations are included in Note 4 to the condensed consolidated financial statements.

Noncontrolling interest .

The 18.6% noncontrolling interest in Tulp 24.1’s loss for the acquisition period was $267,000 and $536,000 for the three and nine months ended September 30, 2024, respectively.

For the three months ended March 31, 2025 and 2024, income from discontinued operations of $10,000 and $72,000, respectively, is a result of the reduction in the accrual for sales tax due to the expiration of the statute of limitations.

Net income (loss) attributable to noncontrolling interest .

The 18.6% noncontrolling interest in Tulp 24.1’s income was $178,000 for the three months ended March 31, 2025 compared to a loss of $251,000 for the three months ended March 31, 2024.

The improvement is primarily due to the increase in gross margin and decrease in general and administrative expenses, partially offset by the increase in interest expense.

Non-GAAP Financial Measures

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generally accepted accounting principles (“GAAP”), has been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP.

This non-GAAP financial measure is not a substitute for, or as an alternative to, and should be considered in conjunction with, respective GAAP financial measures.

This non-GAAP financial measure is not a substitute for, or as an alternative to, and should be considered in conjunction with, the respective GAAP financial measures.

The non-GAAP financial measure presented may differ from similarly named measures used by other companies.

We believe this non-GAAP financial measure will be useful to permit investors to evaluate the business consistent with how management evaluates the business.

Our EBITDA excludes amounts from net loss from discontinued operations that we do not consider part of our core operating results when assessing our performance.

Our EBITDA excludes amounts of income from discontinued operations that we do not consider part of our core operating results when assessing our performance.

Management has used EBITDA (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers;

(b) to measure operational profitability on a consistent basis;

(b) to measure operational profitability consistently;

and (d) to evaluate compliance with covenants and restricted activities under the terms of our Credit Agreement.

Included below is a reconciliation of EBITDA to net loss from continuing operations, the most directly comparable GAAP measure.

Included below is a reconciliation of EBITDA to net income (loss) from continuing operations, the most directly comparable GAAP measure.

Three Months Ended

Nine Months Ended

September 30,

Net loss from continuing operations

$ (1,458,000 )

$ (1,511,000 )

$ (3,541,000 )

$ (2,654,000 )

Interest expense (income), net

Income tax benefit

Net income (loss) from continuing operations

Interest expense, net

Income tax expense (benefit)

Depreciation and amortization

$ (1,623,000 )

$ (2,947,000 )

The Company incurred approximately $24,000 and $1,542,000 of acquisition-related costs during the three months ended March 31, 2025 and 2024, respectively which are included in EBITDA but are not expected to recur.

Liquidity and Capital Resources

The Company has financed its operations with proceeds from the sale of its legacy business and sales of its products, in addition to a significant payment resulting from the settlement of litigation.

To aid in funding the Bloomia acquisition, Tulp 24.1 entered a Credit Agreement that provided an $18,000,000 term loan and a revolver with borrowings of up to $6,000,000.

At September 30, 2024, the Company’s working capital (defined as current assets less current liabilities) was $11,520,000 compared to $15,525,000 at December 31, 2023.

During the nine months ended September 30, 2024, cash and cash equivalents decreased $14,744,000 from $16,077,000 at December 31, 2023 to $1,333,000 at September 30, 2024.

The Company has financed its operations with proceeds from sales of its tulips, credit draws, and, to a lesser extent, the sale of its legacy business.

The Company’s liquidity varied during the period.

The majority of cash is collected in the first half of the calendar year, and the majority of payments, primarily to purchase tulip bulbs, occur in the second half of the calendar year.

At March 31, 2025, the Company’s working capital (defined as current assets less current liabilities) was $6,274,000 compared to $11,026,000 at December 31, 2024.

The decrease is due to sales providing cash to partially pay down debt.

In the quarter, the Company repaid approximately $2,000,000 towards its revolving credit line and $150,000, net of the related party note.

Operating Activities of Continuing Operations .

Net cash used in operating activities during the nine months ended September 30, 2024 was $2,663,000.

Cash from operations is greatest in the first half of the year due to the seasonality of the Bloomia business.

The Company used approximately $11,000,000 in cash in the period to purchase tulips bulbs.

Net cash provided by operating activities during the three months ended March 31, 2025 was $1,737,000 compared to cash provided of $1,384,000 in the three months ended March 31, 2024.

The increase is due to a full quarter of Bloomia operations included in the current period.

Cash from operations is greatest in the first half of the calendar year due to the seasonality of the Bloomia business.

Investing Activities of Continuing Operations .

Net cash used in investing activities during the nine months ended September 30, 2024 was $34,682,000, which primarily related to the purchase price and other expenses resulting from the acquisition of Bloomia.

Net cash used in investing activities also includes cash received from a note receivable, partially offset by cash paid for purchases of property and equipment.

Net cash used in investing activities during the three months ended March 31, 2025 and 2024 were $68,000 and $34,372,000, respectively.

The decrease is primarily due to the purchase price and other expenses resulting from the Acquisition.

Financing Activities .

Net cash provided by financing activities during the nine months ended September 30, 2024 was $22,473,000, which primarily related to proceeds received from issuance of the Credit Agreement used to fund the acquisition of a majority interest in Bloomia.

Net cash used in financing activities during the three months ended March 31, 2025 was $2,132,000.

Cash was used to repay approximately $2,000,000 of the revolving credit line and $150,000, net of the related party note.

Net cash provided by financing activities during the three months ended March 31, 2024 was $21,835,000.

The Company received proceeds from issuance of the Credit Agreement used to fund the acquisition of a majority interest in Bloomia.

On February 22, 2024, the Company acquired majority ownership in Bloomia for a total purchase price of $53,360,000.

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The Acquisition was funded through a combination of debt and cash on hand.

To finance the Bloomia acquisition, the Company entered into the Credit Agreement, together with Tulp 24.1 as the borrower.

Under the terms of the Credit Agreement, Tulp 24.1 had an $18.0 million term loan funded.

To finance the Acquisition, the Company entered into the Credit Agreement, together with Tulp 24.1 as the borrower.

Under the terms of the Credit Agreement, Tulp 24.1 had an $18,000,000 term loan funded.

The Credit Agreement also contains a $6,000,000 million revolving credit facility, which may be used by Tulp 24.1 for general business purposes and working capital.

On October 16, 2024, the Company amended the credit agreement (Amended Credit Agreement) to, among other things, temporarily increase the borrowing capacity under the revolving credit facility to $8,000,000.

The Company reduced the outstanding balance to $6,000,000 as of March 31, 2025 to align with the credit agreement.

Borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to Term SOFR for an interest period of one month plus 3.0%.

In addition to paying interest on the outstanding principal under the Credit Agreement, Tulp 24.1 is required to pay a commitment fee of 0.50% on the unutilized commitments under the revolving credit facility.

The term loans are scheduled to be repaid in quarterly installments of $450,000, commencing on June 30, 2024.

The term loan is repaid in quarterly installments of $450,000, which began in June 2024.

The remaining outstanding balance will be repaid in full after five years.

The scheduled maturity of the revolving facility is February 20, 2029.

The September 2024 installment was paid in October 2024 and is included in the current portion of long-term debt on the condensed consolidated balance sheet.

The March 2025 installment was paid on April 1, 2025 and is included in the current portion of long-term debt on the condensed consolidated balance sheet.

The obligations under the Amended Credit Agreement are secured by substantially all of the personal property assets of Tulp 24.1 and its subsidiaries.

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The Amended Credit Agreement requires Tulp 24.1 and its subsidiaries to maintain (a) a minimum fixed charge coverage ratio of not less than 1.25 to 1.00 and (b) a maximum senior cash flow leverage ratio of 3.75 to 1.0 until March 31, 2025, and stepping down to 2.00 to 1.00 on December 31, 2027, until the maturity date of the Amended Credit Agreement.

The Amended Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict the ability of Tulp 24.1 and its subsidiaries to incur additional indebtedness, dispose of significant assets, make distributions or pay dividends to the Company, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions or grant liens on its assets, subject to certain limitations.

Due to the shift in the Easter holiday from March 2024 to April 2025, the holiday sales were excluded from the ratio calculation as of March 31, 2025, and the Company was in breach.

The lender waived the breach as of March 31, 2025, with no financial impact.

The Company expects to be in compliance with these financial covenants for at least the next twelve months.

The Amended Credit Agreement contains customary events of default, the occurrence of which would permit the lenders to terminate their commitments and accelerate loans under the Amended Credit Agreement, including failure to make payments under the credit facility, failure to comply with covenants in the Amended Credit Agreement and other loan documents, cross default to other material indebtedness of Tulp 24.1 or any of its subsidiaries, failure of Tulp 24.1 or any of its subsidiaries to pay or discharge material judgments, bankruptcy of Tulp 24.1 or any of its subsidiaries, and change of control of the Company.

As of September 30, 2024, the Company was in compliance with these financial covenants and expects to be in compliance for at least the next twelve months.

As part of the financing of the Bloomia acquisition, Tulp 24.1 entered into notes payable with the sellers.

Notes payable for $12,750,000 million have a term of five years, subject to requiring principal payments based on “excess cash flow” as defined.

As part of the financing of the Acquisition, Tulp 24.1 entered into notes payable with the sellers.

Notes payable for $12,750,000 have a term of five years, subject to requiring principal payments based on “excess cash flow” as defined.

Interest is at 8% per annum in the first year and increases annually by 2 percentage points.

Notes payable for $2,700,000 million were paid in full as of June 30, 2024.

On August 15, 2024, we entered into an unsecured Delayed Draw Term Note (the “ Note ”) with Air T Inc.

Notes payable for $2,700,000 were paid in full as of June 30, 2024.

On August 15, 2024, and as amended on September 27, 2024 and January 15, 2025, the Company entered into an unsecured Delayed Draw Term Note (the “Note”) with Air T Inc.

(Air T) pursuant to which Air T has agreed to advance from time to time until August 15, 2026, but not on a revolving basis, up to $3.75 million to fund the Company’s operations.

Amounts outstanding under the Note will bear interest at a fixed rate of 8.0%, which may be increased by 3.0% upon certain events of default.

The entire principal amount outstanding on the Loans, together with accrued and unpaid interest thereon as set forth below, shall be due and payable in full on the earlier of (i) August 15, 2029, (ii) Borrow’s receipt of a written demand by the Lender delivered on or after February 15, 2026, and (iii) such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise (the “ Maturity Date ”).

The borrower may prepay any Loan outstanding hereunder, together with accrued and unpaid interest on such Loan, at any time without prepayment or penalty.

The Company borrowed $2,000,000 under the note in September 2024.

The Note remains scheduled to mature, and all principal and accrued but unpaid interest will become due on August 15, 2029, subject to Air T’s right to demand payment on or after February 15, 2026.

Amounts outstanding under the Note bear interest at a fixed rate of 8.0%, which may be increased by 3.0% upon certain events of default, and is accrued and deferred until maturity.

Air T beneficially owns greater than 10% of our outstanding Common Stock and is a member of a group of stockholders that collectively owns approximately 40% of our outstanding common stock.

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The entry into the Note was approved in advance by the Audit Committee of our Board of Directors in accordance with our Related Person Transaction Approval Policy and by a vote of solely independent directors who have no relationship with Air T.

The Company expects that cash from operations combined with funds available under the Amended Credit Facility and the Note will provide sufficient credit availability to support its ongoing operations, fund its new debt service requirements, capital expenditures and working capital for at least the next 12 months.

The Company expects that cash from operations combined with funds available under the Amended Credit Facility and the Note will provide sufficient credit availability to support its ongoing operations, fund its debt service requirements, capital expenditures and working capital for at least the next 12 months.

As the Company grows its businesses, we may be required to obtain additional capital through equity offerings or additional debt financings.

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Critical Accounting Estimates

Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to business combinations, inventory, goodwill, long-lived and indefinite-lived assets, and income taxes.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements.

Our significant accounting policies are described in Note 2 to the financial statements included in Part I, Item 1 of this report.

We believe our most critical accounting estimates include the following:

We coordinate with recurring customers to plan production based on anticipated demand and projections;

however, we may have to write down inventory or recognize a material impairment if our production significantly exceeds customer demand.

Business Combinations.

We account for business combinations under the acquisition method of accounting.

This method requires the recording of acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition date fair values.

The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, royalty rates and asset lives, among other items.

We used the income approach to value certain intangible assets.

Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset.

The fair value of customer relationships was estimated using a discounted present value income approach.

We used the income approach known as the relief from royalty method to value the fair value of the trade name.

The relief from royalty method is based on the hypothetical royalty stream that would be received if we were to license the trade name and was based on expected revenues.

The determination of the fair value of other assets acquired and liabilities assumed involves assessing factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount rates at the date of the acquisition.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocation.

During this measurement period, we will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date.

All changes that do not qualify as measurement period adjustments are included in current period earnings.

If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets.

Impairment of goodwill and indefinite-lived intangibles.

Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.

We test goodwill and identifiable intangible assets with indefinite lives for impairment at least annually in the fourth quarter.

Impairment testing for goodwill is done at a reporting unit level and all goodwill is assigned to a reporting unit.

Our reporting units are the same as our reporting segments.

We test goodwill for impairment by either performing a qualitative evaluation or a quantitative test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value.

The qualitative evaluation is an assessment of factors, including reporting unit specific operating results and cost factors, as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

We may elect to bypass this qualitative assessment and perform the quantitative test in accordance with ASC 350, Intangibles - Goodwill and Other .

Fair values under the quantitative test are estimated using a combination of discounted projected future earnings or cash flow methods and multiples of earnings in estimating fair value.

The estimate of the reporting unit’s fair value is determined by weighing a discounted cash flow model and a market-related model using current industry information that involve significant unobservable inputs (Level 3 inputs).

In determining the estimated future cash flow, we consider and apply certain estimates and judgments, including current and projected future levels of income based on management’s plans, business trends, prospects and market and economic conditions, and market-participant considerations.

These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts.

If we fail the quantitative assessment of goodwill impairment (“quantitative assessment”), we would be required to recognize an impairment loss equal to the amount that a reporting unit’s carrying value exceeded its fair value.

We have an indefinite-lived intangible asset for trade name of $8,570,000 from the Bloomia acquisition.

Annually in the fourth quarter, or if conditions indicate an additional review is necessary, we assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount.

We have the option to first assess qualitative factors to determine whether the fair value of a trade name is “more likely than not” less than its carrying value.

If it is more likely than not that an impairment has occurred, we then perform the quantitative impairment test.

If we perform the quantitative test, the carrying value of the asset is compared to an estimate of its fair value to identify impairment.

The fair value is determined by the relief from royalty method, which requires significant judgment.

Actual results may differ from assumed and estimated amounts utilized in the analysis.

If we conclude an impairment exists, the asset’s carrying value will be written down to its fair value.

Long-Lived Assets .

Long-lived assets, which include property and equipment, and definite-lived intangible assets, primarily customer relationships and trade name, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

The impairment testing involves comparing the carrying amount of the asset to the forecasted undiscounted future cash flows generated by that asset.

These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts.

In the event the carrying amount of the asset exceeds the undiscounted future cash flows generated by that asset and the carrying amount is not considered recoverable, an impairment exists.

An impairment loss is measured as the excess of the asset’s carrying amount over its fair value and is recognized in the statement of income in the period that the impairment occurs.

The reasonableness of the useful lives of this asset and other long-lived assets is regularly evaluated.

Interest expense.

For debt with variable rate interest , interest expense is recorded based on a weighted average effective interest rate method.

The significant assumptions used in the weighted average estimate are the future debt balance and the length of time the debt will be outstanding.

Income taxes .

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.

Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year.

In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income, and available tax planning strategies.

If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required.

Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions.

If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed, and we will recognize a tax benefit during the period in which it is determined the liability no longer applies.

Conversely, the Company records additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty.

Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings.

Therefore, the actual liability for U.S.

or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.

A discussion of our critical accounting estimates is contained in our annual report on Form 10-K for the year ended December 31, 2024.

There have been no changes to our critical accounting estimates from those disclosed on our Form 10-K for the year ended December 31, 2024.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made in this report that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements.

Certain statements made in this report that are not statements of historical or current facts are considered “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements.

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “likely,” “may,” “plan,” “project,” “will” and similar expressions identify forward-looking statements.

Forward-looking statements include statements expressing the intent, belief or current expectations of the Company and members of our management team regarding, for instance:

(i) our belief that our cash balance, cash generated by operations and borrowings available under our Credit Agreement, will provide adequate liquidity and capital resources for at least the next twelve months, (ii) regarding the potential for growth and other opportunities for our business, and (iii) the nature and timing of the Company’s intended financial reporting during its transition to a fiscal year ending June 30.

Readers are cautioned not to place undue reliance on these forward- looking statements, which speak only as of the date the statement was made.

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Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following:

(1) our ability to integrate and continue to successfully operate the newly acquired Bloomia business, (2) our ability to compete, (3) concentration of Bloomia’s historical revenue among a small number of customers, (4) changes in interest rates, (5) ability to comply with the requirements of the Credit Agreement, (6) market conditions that may restrict or delay appropriate or desirable opportunities, (7) our ability to develop and maintain necessary processes and controls relating to our businesses (8) reliance on one or a small number of employees in each of our businesses, (9) potential adverse classifications of our Company if we are unsuccessful in executing our business plans, (10) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s businesses generally;

(1) our ability to integrate and continue to successfully operate the newly acquired Bloomia business, (2) our ability to compete, (3) concentration of Bloomia’s historical revenue among a small number of customers, (4) changes in interest rates, (5) ability to comply with the requirements of the Credit Agreement and operate within its restrictions, (6) economic and market conditions that may restrict or delay appropriate or desirable opportunities, (7) our ability to develop and maintain necessary processes and controls relating to our businesses (8) reliance on one or a small number of employees, (9) potential adverse classifications of our Company if we are unsuccessful in executing our business plans, (10) other economic, international, business, market, financial, competitive and/or regulatory factors affecting the Company’s businesses generally;

(11) our ability to attract and retain highly qualified managerial, operational and sales personnel;

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Such forward-looking statements should be read in conjunction with the Company’s filings with the SEC.

Lendway assumes no responsibility to update the forward-looking statements contained in this report or the reasons why actual results would differ from those anticipated in any such forward-looking statement, other than as required by law.

The Company assumes no responsibility to update the forward- looking statements contained in this report or the reasons why actual results would differ from those anticipated in any such forward-looking statement, other than as required by law.

Quantitative and Qualitative Disclosures about Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis