Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Company’s condensed consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. 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
The Company is a specialty agricultural company focused on making and managing its agricultural investments in the United States and internationally.
In August 2023, the Company completed the sale of its In-Store Marketing Business for gross proceeds of $3.5 million (See Note 4 in the condensed consolidated financial statements). The operations of the In-Store Marketing Business are presented as discontinued operations. All prior periods presented have been restated to also present the In-Store Marketing Business as discontinued operations.
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.
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.
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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. Accounts receivable and inventory balances are at their lowest levels in the summer following the strong spring sales season. Inventory balances peak prior to the spring season.
Results of Operations
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
March 31,
2025
2024
Revenue, net
$
12,443,000
$
8,033,000
Cost of goods sold
8,554,000
6,289,000
Gross profit
3,889,000
1,744,000
Gross profit as a percent of revenue
31.3
%
21.7
%
Sales, general and administrative expenses
2,457,000
3,388,000
Operating income (loss)
1,432,000
(1,644,000)
Operating income (loss) as a percent of revenue
11.5
%
(20.5)
%
Foreign exchange difference, net
(335,000)
(45,000)
Interest expense, net
970,000
225,000
Other expense, net
24,000
9,000
Income (loss) from continuing operations before income taxes
773,000
(1,833,000)
Income tax expense (benefit)
156,000
(347,000)
Net income (loss) from continuing operations
617,000
(1,486,000)
Income from discontinued operations, net of tax
10,000
72,000
Net income (loss) including noncontrolling interest
627,000
(1,414,000)
Less: Net income (loss) attributable to noncontrolling interest
178,000
(251,000)
Net income (loss) attributable to Lendway, Inc.
$
449,000
$
(1,163,000)
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Revenue, Net. 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 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 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.
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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.
Income Taxes. 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.
See Note 11 in the condensed consolidated financial statements.
Income from Discontinued Operations, Net of Tax. 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
This report includes EBITDA which is a “non-GAAP financial measure.” EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense.
This non-GAAP financial measure, which is not calculated or presented in accordance with U.S. 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, 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 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 consistently; (c) in presentations to the members of our Board of Directors; 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 income (loss) from continuing operations, the most directly comparable GAAP measure.
Three Months Ended
March 31,
2025
2024
Net income (loss) from continuing operations
$
617,000
$
(1,486,000)
Interest expense, net
970,000
225,000
Income tax expense (benefit)
156,000
(347,000)
Depreciation and amortization
835,000
300,000
EBITDA
$
2,578,000
$
(1,308,000)
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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 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 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 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 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. Consideration 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.
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 until March 31, 2025. 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 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 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. The Company provided an unsecured guaranty of the obligations of Tulp 24.1 under the Amended Credit Agreement.
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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. 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 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 and make distributions or pay dividends to the Company. 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 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 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. 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. Additionally, our current director and Co-Chief Executive Officer, Mark R. Jundt, serves as General Counsel and Corporate Secretary of Air T, current director and Co-Chief Executive Officer, Daniel C. Philp, serves as Senior Vice President of Corporate development at Air T, and current director Nicholas J. Swenson serves as President and Chief Executive Officer of Air T and is himself a member of the stockholder group. 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 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. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include additional covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the U.S. and worldwide. If we are unable to raise additional funds when needed, we may not be able to grow our businesses or complete transactions related to the strategy.
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Critical Accounting Estimates
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 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. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes.
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 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; and (12) the availability of additional capital on desirable terms, if at all. Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those set forth in this report and additional risks, if any, identified in our Annual Report on Form 10-K, this and subsequent Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K filed with the SEC. Such forward-looking statements should be read in conjunction with the Company’s filings with the SEC. 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
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