BLOOMIA HOLDINGS, INC. 10-Q

Item 1. Financial Statements Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2023 December 31, (Unaudited) 2022 ASSETS Current Assets: Cash and cash equivalents $ 11,419,000 $ 14,439,000 Restricted cash 85,000 85,000 Accounts receivable, net 7,583,000 5,557,000 Inventories 28,000 29,000 Income tax receivable 90,000 28,000 Prepaid production costs 143,000 535,000 Other prepaid expense 208,000 80,000 Total Current Assets 19,556,000 20,753,000 Other Assets: Property and equipment, net 71,000 71,000 Operating lease right-of-use assets 123,000 144,000 Other, net 10,000 — Total Assets $ 19,760,000 $ 20,968,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 1,324,000 2,653,000 Accrued liabilities: Compensation 912,000 962,000 Sales tax 397,000 717,000 Other 722,000 611,000 Current portion of operating lease liabilities 16,000 4,000 Deferred revenue 1,154,000 2,427,000 Total Current Liabilities 4,525,000 7,374,000 Long-Term Liabilities: Accrued income taxes 55,000 53,000 Operating lease liabilities 123,000 140,000 Total Long-Term Liabilities 178,000 193,000 Commitments and Contingencies — — Shareholders' Equity: Common stock, par value $.01: Authorized shares - 5,714,000 Issued and outstanding shares - 1,798,000 at June 30, 2023 and 1,797,000 at December 31, 2022, respectively 18,000 18,000 Additional paid-in capital 16,502,000 16,458,000 Accumulated deficit ( 1,463,000 ) ( 3,075,000 ) Total Shareholders' Equity 15,057,000 13,401,000 Total Liabilities and Shareholders' Equity $ 19,760,000 $ 20,968,000 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Sytems, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30 June 30 2023 2022 2023 2022 Net services revenues $ 6,211,000 $ 3,254,000 $ 19,042,000 $ 9,402,000 Cost of services 4,588,000 2,838,000 14,499,000 7,706,000 Gross Profit 1,623,000 416,000 4,543,000 1,696,000 Operating Expenses: Selling 361,000 290,000 725,000 632,000 Marketing 300,000 279,000 596,000 538,000 General and administrative 1,129,000 948,000 1,850,000 1,554,000 Total Operating Expenses 1,790,000 1,517,000 3,171,000 2,724,000 Operating (Loss) Income ( 167,000 ) ( 1,101,000 ) 1,372,000 ( 1,028,000 ) Interest income 135,000 31,000 247,000 28,000 (Loss) Income before Taxes ( 32,000 ) ( 1,070,000 ) 1,619,000 ( 1,000,000 ) Income tax expense 4,000 14,000 7,000 22,000 Net (Loss) Income $ ( 36,000 ) $ ( 1,084,000 ) $ 1,612,000 $ ( 1,022,000 ) Net (loss) income per share: Basic $ ( 0.02 ) $ ( 0.61 ) $ 0.90 $ ( 0.57 ) Diluted $ ( 0.02 ) $ ( 0.61 ) $ 0.89 $ ( 0.57 ) Shares used in calculation of net (loss) income per share: Basic 1,798,000 1,788,000 1,798,000 1,787,000 Diluted 1,798,000 1,788,000 1,802,000 1,787,000 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2022 1,797,000 $ 18,000 $ 16,458,000 $ ( 3,075,000 ) $ 13,401,000 Issuance of common stock, net 1,000 — 8,000 — 8,000 Value of stock-based compensation — — 22,000 — 22,000 Net income — — — 1,648,000 1,648,000 Balance at March 31, 2023 1,798,000 $ 18,000 $ 16,488,000 $ ( 1,427,000 ) $ 15,079,000 Value of stock-based compensation — — 14,000 — 14,000 Net loss — — — ( 36,000 ) ( 36,000 ) Balance at June 30, 2023 1,798,000 $ 18,000 $ 16,502,000 $ ( 1,463,000 ) $ 15,057,000 Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance at December 31, 2021 1,782,000 $ 18,000 $ 16,296,000 $ ( 13,121,000 ) $ 3,193,000 Issuance of common stock, net 4,000 — 28,000 — 28,000 Value of stock-based compensation — — 30,000 — 30,000 Net income — — — 62,000 62,000 Balance at March 31, 2022 1,786,000 $ 18,000 $ 16,354,000 $ ( 13,059,000 ) $ 3,313,000 Issuance of common stock, net 1,000 — 11,000 — 11,000 Value of stock-based compensation — — 29,000 — 29,000 Issuance of common stock upon vesting of restricted stock units 6,000 — — — — Net loss — — — ( 1,084,000 ) ( 1,084,000 ) Balance at June 30, 2022 1,793,000 $ 18,000 $ 16,394,000 $ ( 14,143,000 ) $ 2,269,000 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30 2023 2022 Operating Activities: Net income (loss) $ 1,612,000 $ ( 1,022,000 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 26,000 31,000 Changes in allowance for doubtful accounts 11,000 27,000 Stock-based compensation expense 36,000 59,000 Changes in operating assets and liabilities: Accounts receivable ( 2,037,000 ) 1,096,000 Inventories 1,000 ( 6,000 ) Income tax receivable ( 62,000 ) ( 2,000 ) Prepaid expenses and other 254,000 941,000 Accounts payable ( 1,336,000 ) ( 1,208,000 ) Accrued liabilities ( 243,000 ) ( 1,170,000 ) Accrued income taxes 2,000 19,000 Deferred revenue ( 1,273,000 ) ( 240,000 ) Net cash used in operating activities ( 3,009,000 ) ( 1,475,000 ) Investing Activities: Purchases of property and equipment ( 19,000 ) ( 28,000 ) Net cash used in investing activities ( 19,000 ) ( 28,000 ) Financing Activities: Proceeds from issuance of common stock, net 8,000 39,000 Net cash provided by financing activities 8,000 39,000 Decrease in cash and cash equivalents and restricted cash ( 3,020,000 ) ( 1,464,000 ) Cash and cash equivalents and restricted cash at beginning of period 14,524,000 3,851,000 Cash and cash equivalents and restricted cash at end of period $ 11,504,000 $ 2,387,000 Supplemental disclosures for cash flow information: Cash paid during the period for income taxes $ 66,000 $ 5,000 Non-cash financing activity: Purchase of property and equipment included in accounts payable $ 7,000 $ - See accompanying notes to condensed consolidated financial statements. 7 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) 1. Description of Business and Basis of Presentation. Description of Business . Lendway, Inc., a Delaware corporation (the “Company), is building a scalable non-bank lending business to purchase existing loans or originate and fund new loans, all of which will be secured by collateral. On August 4, 2023, the Company changed its name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware. As part of the name change, the Company’s common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC. As described in Note 2, on August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “Legacy Business”) for a price of $3.5 million, subject to escrows and a post-closing adjustment. Basis of Presentation . The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’s financial statements as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2023 (the Form 10-K). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying condensed balance sheet as of December 31, 2022 has been derived from the audited balance sheet as of December 31, 2022 contained in the Form 10-K. The condensed consolidated financial statements include the accounts of the Company, its subsidiary, Farmland Credit, Inc., a Minnesota corporation (“FCI”), and FCI’s subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC. The operations of the Legacy Business will be presented as discontinued operations beginning with the Quarterly Report on Form 10-Q for the three months ended September 30, 2023, the period in which the sale of the Legacy Business met the criteria as a discontinued operation. 2. Asset Sale. On August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s Legacy Business for a price of $ 3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement (the “Purchase Agreement”). The Company retained accounts receivable, as well as cash, cash equivalents and marketable securities. The purchase price is subject to a post-closing adjustment depending on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The Company received significant cash payments between July 1 and August 3, 2023 for unexecuted programs, which the Company will retain, but which will reduce the purchase price. Under the Purchase Agreement, $200,000 was escrowed for a twelve-month period for any future claims, as defined in the Purchase Agreement, by the Buyer against the Company . The Company incurred approximately $ 350,000 of transaction-related costs that had not previously been expensed. The Company also incurred transaction-related severance and other separation benefits in connection with the termination of certain officers and employees of the Company of approximately $ 1,537,000 , as well as retention award payouts totaling $ 143,000 and employee bonuses totaling $ 164,000 , each of which will be recorded as expense in the three months ended September 30, 2023. The operations of the Legacy Business will be presented as discontinued operations beginning with the Quarterly Report on Form 10-Q for the three months ended September 30, 2023. The Company is presenting unaudited pro forma condensed consolidated information on a discontinued operations basis to illustrate the significant impact of the sale of the Legacy Business on the Company’s balance sheet and statement of operations. The Company is presenting the pro forma information for the three months ended June 30, 2023, as that is the period in which the non-bank lending business began. No impact from the sale proceeds and related costs are included in the pro forma information. 8 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) The unaudited pro forma condensed consolidated balance sheet illustrates the impact at June 30, 2023 had discontinued operations presentation been used (unaudited). The amounts held for sale represent the assets that will be purchased by the Buyer and liabilities which will be assumed by the Buyer: Historical Discontinued Operations Adjustments Pro Forma Continued Operations ASSETS Current Assets: Cash and cash equivalents $ 11,419,000 $ - $ 11,419,000 Restricted cash 85,000 - 85,000 Accounts receivable, net 7,583,000 - 7,583,000 Inventories 28,000 ( 28,000 ) - Income tax receivable 90,000 - 90,000 Prepaid production costs 143,000 ( 143,000 ) - Other prepaid expense 208,000 ( 19,000 ) 189,000 Current assets held for sale - 190,000 190,000 Total Current Assets 19,556,000 - 19,556,000 Other Assets: Property and equipment, net 71,000 ( 71,000 ) - Operating lease right-of-use assets 123,000 ( 123,000 ) - Other, net 10,000 - 10,000 Non-current assets held for sale - 194,000 194,000 Total Assets $ 19,760,000 $ - $ 19,760,000 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 1,324,000 ( 72,000 ) 1,252,000 Accrued liabilities 2,031,000 - 2,031,000 Current portion of operating lease liabilities 16,000 ( 16,000 ) - Deferred revenue 1,154,000 ( 1,154,000 ) - Current liabilities held for sale - 1,242,000 1,242,000 Total Current Liabilities 4,525,000 - 4,525,000 Long-Term Liabilities: Accrued income taxes 55,000 - 55,000 Operating lease liabilities 123,000 ( 123,000 ) - Non-current liabilities held for sale - 123,000 123,000 Total Long-Term Liabilities 178,000 - 178,000 Commitments and Contingencies - - - Shareholders' Equity: Total Shareholders' Equity 15,057,000 - 15,057,000 Total Liabilities and Shareholders' Equity $ 19,760,000 $ - $ 19,760,000 9 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) The unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2023 illustrates the impact for that period had discontinued operations presentation been used (unaudited). The discontinued operations adjustments represent amounts that relate to the Legacy Business, with no allocation of general overhead to the Legacy Business: Historical Discontinued Operations Adjustments Pro Forma Continuing Operations Net services revenues $ 6,211,000 $ ( 6,211,000 ) $ - Cost of services 4,588,000 ( 4,588,000 ) - Gross Profit 1,623,000 ( 1,623,000 ) - Operating Expenses: Selling 361,000 ( 361,000 ) - Marketing 300,000 ( 300,000 ) - General and administrative 1,129,000 ( 572,000 ) 557,000 Total Operating Expenses 1,790,000 ( 1,233,000 ) 557,000 Operating Income (Loss) ( 167,000 ) ( 390,000 ) ( 557,000 ) Interest income 135,000 - 135,000 Income (Loss) from Operations Before Taxes ( 32,000 ) ( 390,000 ) ( 422,000 ) Income tax expense 4,000 - 4,000 Net Income (Loss) from Continuing Operations $ ( 426,000 ) Net (Income) Loss from Discontinued Operations $ ( 390,000 ) Net Income (Loss) $ ( 36,000 ) Net income (loss) per share, basic and diluted: Continuing operations $ ( 0.24 ) Discontinued operations $ 0.22 Total $ ( 0.02 ) Weighted average shares outstanding: Basic and diluted 1,798,000 1,798,000 1,798,000 10 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) 3. Summary of Significant Accounting Policies. Cash and Cash Equivalents and Restricted Cash. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows: June 30, December 31, 2023 2022 Cash and cash equivalents $ 11,419,000 $ 14,439,000 Restricted cash 85,000 85,000 Total cash, cash equivalents and restricted cash $ 11,504,000 $ 14,524,000 Inventories . Inventories are primarily comprised of sign cards and hardware. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Property and Equipment . During the six months ended June 30,2023, fully depreciated property and equipment in the aggregate amount of $ 268,000 was written off. Property and equipment consisted of the following as of the dates indicated: June 30, December 31, 2023 2022 Property and Equipment: Production tooling, machinery and equipment $ - $ 27,000 Office furniture and fixtures 85,000 95,000 Computer equipment and software 531,000 771,000 Leasehold improvements 19,000 19,000 Construction in-progress 12,000 3,000 647,000 915,000 Accumulated depreciation and amortization ( 576,000 ) ( 844,000 ) Net Property and Equipment $ 71,000 $ 71,000 Depreciation expense was approximately $ 12,000 and $ 26,000 in the three and six months ended June 30, 2023, respectively, and was $ 15,000 and $ 31,000 in the three and six months ended June 30, 2022, respectively. Stock-Based Compensation . The Company measures and recognizes compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock as of the date of the grant. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. During the six-month periods ended June 30, 2023 and 2022 no equity awards were issued by the Company. In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Equity Incentive Plan. The shares underlying the awards were assigned a value of $ 8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $ 45,000 . The shares vested on June 1, 2022. The Company estimated the fair value of stock-based awards granted during the three and six months ended June 30, 2023, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 95.2 %, dividend yield of 0 % and risk-free interest rate of 4.7 %. 11 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) Total stock-based compensation expense recorded for the three and six months ended June 30, 2023 was $ 14,000 and $ 36,000 , respectively, and for the three and six months ended June 30, 2022 was $ 29,000 and $ 59,000 , respectively. Net (Loss) Income per Share . Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average shares outstanding and excludes any potential dilutive effects of stock options and restricted stock units and awards. Diluted net (loss) income per share gives effect to all dilutive potential common shares outstanding during the period. Due to the net loss incurred during the three months ended June 30, 2023 all outstanding stock awards were anti-dilutive for that periods. For the six months ended June 30, 2023 options to purchase approximately 14,000 shares of common stock with a weighted average exercise price of $ 11.74 were outstanding and were not included in the computation of common stock equivalents for the six months ended June 30, 2023 because their exercise prices were higher than the average fair market value of the common stock during the reporting period. Due to the net loss incurred during the three and six months ended June 30, 2022 all outstanding stock awards were anti-dilutive for those periods. As of June 30, 2022, the Company had 14,086 options and 3,396 restricted units outstanding. Weighted average common shares outstanding for the three and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended Six Months Ended June 30 June 30 2023 2022 2023 2022 Denominator for basic net loss per share - weighted average shares 1,798,000 1,788,000 1,798,000 1,787,000 Effect of dilutive securities: Stock options and restricted stock units — — 4,000 — Denominator for diluted net loss per share - weighted average shares 1,798,000 1,788,000 1,802,000 1,787,000 4. Revenue Recognition. Under Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“Topic 606”), revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “ Performance Obligations .” Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting. The Company includes shipping and handling fees in revenues. Shipping and handling costs associated with outbound freight after control over a product has been passed to a customer are accounted for as a fulfillment cost and are included in cost of goods sold. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The following is a description of the Company’s performance obligations included in its primary revenue streams and the timing or method of revenue recognition for each: 12 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) Display, On-Pack, and Non-POPS Signage Solutions . The Legacy Business supplied CPG manufacturers with retailer approved promotional services, such as display, on-pack, and signage solutions. These services were more customized than POPS, consisting of variable durations and variable specifications. Due to the variable nature of these services, revenue recognition is primarily at a point-in-time recognition. POPS Signage Solution Services. The Legacy Business provided a service of displaying promotional signs in close proximity to the CPG manufacturer’s product in participating stores, which the Company maintained in two-to-four-week cycle increments. Each of the individual activities under the Legacy Business’ services, including production activities, are inputs to an integrated sign display service. Customers receive and consume the benefits from the promotional displays over the duration of the contracted display cycle. Additionally, the display of the signs does not have an alternative use to the Company and the Company had an enforceable right to payment for services performed through the closing of the sale of the Legacy Business. As a result, the Company has recognized the transaction price for service performance obligations as revenue over time. Given the nature of the Legacy Business’ performance obligations is to provide a display service over the duration of a specified period or periods, the Company recognizes revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of its sign solutions. Disaggregation of Revenue In the following table, revenue is disaggregated by timing of revenue recognition. Three months ended June 30 Six months ended June 30 2023 2022 2023 2022 Services Revenues Services Revenues Services Revenues Services Revenues Timing of revenue recognition: Services transferred over time $ 470,000 $ 502,000 $ 733,000 $ 958,000 Services transferred at a point in time 5,741,000 2,752,000 18,309,000 8,444,000 Total $ 6,211,000 $ 3,254,000 $ 19,042,000 $ 9,402,000 Contract Costs Sales commissions that were paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company is applying the practical expedient in Accounting Standards Codification 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less. These costs are included in selling expenses. Deferred Revenue Deferred revenues represent amounts collected from customers in advance of the satisfaction of performance obligations. Significant changes in deferred revenue during the period are as follows: Balance at December 31, 2022 $ 2,427,000 Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied ( 2,066,000 ) Cash received in advance and not recognized as revenue 793,000 Balance at June 30, 2023 $ 1,154,000 13 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) Transaction Price Allocated to Remaining Performance Obligations The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, which reflect the majority of its performance obligations. This practical expedient is being applied to arrangements for certain incomplete services and unshipped custom signage materials. Contracts that had an expected duration of greater than one year were insignificant at June 30, 2023. 5. Leases. As of June 30, 2023, the Company leased space under a non-cancelable operating lease for its corporate headquarters, which had been renewed through December 31, 2026. The Company also had a lease for warehouse space which expired March 31, 2023. The warehouse lease was extended on a month-to-month basis effective April 1, 2023. The corporate headquarters lease had escalating lease payment terms but did not contain a contingent rent provision. The leases for both the Company’s corporate headquarters and its warehouse included both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. The headquarters lease required the Company to provide a letter of credit, which was supported by $ 85,000 reflected as restricted cash on the consolidated balance sheet. The Company used its incremental borrowing rate of approximately 7.0 % in determining the present value of the extended lease payments. The cost components of the Company’s operating leases were as follows for the three and six month periods ended June 30, 2023 and 2022: Three months ended June 30, 2023 Six months ended June 30, 2023 Corporate Operating Corporate Operating Headquarters Other Leases Headquarters Other Leases Operating lease cost $ 10,000 $ - $ 10,000 $ 21,000 $ 4,000 $ 25,000 Variable lease cost 2,000 - 2,000 6,000 4,000 10,000 Short-term lease cost - 10,000 10,000 - 10,000 10,000 Total $ 12,000 $ 10,000 $ 22,000 $ 27,000 $ 18,000 $ 45,000 Three months ended June 30, 2022 Six months ended June 30, 2022 Corporate Operating Corporate Operating Headquarters Other Leases Headquarters Other Leases Operating lease cost $ 16,000 $ 5,000 $ 21,000 $ 33,000 $ 9,000 $ 42,000 Variable lease cost 10,000 3,000 13,000 20,000 6,000 26,000 Total $ 26,000 $ 8,000 $ 34,000 $ 53,000 $ 15,000 $ 68,000 Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs which are paid based on actual costs incurred by the lessor. Maturities of the Company’s lease liabilities for its corporate headquarters operating lease are as follows as of June 30, 2023: 2023 $ - 2024 52,000 2025 53,000 2026 55,000 Total lease payments 160,000 Less: Interest 21,000 Present value of lease liabilities $ 139,000 14 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) The remaining lease terms as of June 30, 2023 for the Company’s corporate headquarters lease was 3.5 years. The cash outflows for operating leases were $ 0 and $ 10,000 for the three and six months ended June 30, 2022, respectively, and were $ 20,000 and $ 41,000 for the three and six months ended June 30, 2022, respectively. Subsequent to June 30, 2023, the headquarters lease was assigned to the Buyer as a part of the sale of the Legacy Business. 6. Income Taxes. For the three and six months ended June 30, 2023, the Company recorded income tax expense of $ 4,000 and $ 7,000 , respectively, or 12.5 % and 0.4 % of loss (income) before taxes, respectively. For the three and six months ended June 30, 2022, the Company recorded income tax expense of $ 14,000 and $ 22,000 , respectively, or 1.3 % and 2.2 % of loss before taxes, respectively. The income tax expense for the three and six months ended June 30, 2023 and 2022 is comprised of federal and state taxes. The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). The actual tax expense attributable to income before taxes differs from the expected tax expense computed by applying the U.S. federal corporate income tax rate of 21.0 % as follows: Six months ended June 30, 2023 2022 Federal statutory rate 21.0 % 21.0 % Stock-based awards 2.2 ( 0.5 ) State taxes 3.8 3.4 Impact of uncertain tax positions 0.1 ( 1.9 ) Valuation allowance ( 24.2 ) ( 25.0 ) Other ( 2.5 ) 0.8 Effective federal income tax rate 0.4 % ( 2.2 )% Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. 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, adjustment 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. As of June 30, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $ 55,000 and $ 53,000 , 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 $ 55,000 . At December 31, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $ 2,900,000 . As of June 30, 2023, the Company estimates remaining Federal NOL carryforwards to be approximately $ 1,300,000 . Federal NOL utilization is limited to 80% of estimated taxable income. The estimated NOL carry forward will be adjusted at year end for actual results. 7. Concentrations. During the six months ended June 30, 2023, two customers accounted for 27 % and 18 %, respectively of the Legacy Business’ total net sales. During the six months ended June 30, 2022, three customers accounted for 22 %, 15 % and 10 %, respectively of the Legacy Business’ total net sales. At June 30, 2023, one customer represented 70 % of the Legacy Business’ total accounts receivable. At December 31, 2022, three customers represented 20 %, 19 % and 11 %, respectively, of the Company’s total accounts receivable. 15 Table of Contents Lendway, Inc. and Subsidiaries (formerly Insignia Systems, Inc.) Notes To Condensed Consolidated Financial Statements (Unaudited) 8. Legal Proceedings. The Company is subject to various legal matters in the normal course of business. The outcome of these matters is not expected to have a material effect on the Company’s financial position or results of operations. In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”) in the U.S. District Court in Minnesota, alleging violations of federal and state antitrust and tort laws by News America. On July 1, 2022, the Company entered into a $ 20 million settlement agreement with News America. The agreement memorializes the amicable settlement of the Company’s outstanding lawsuit against News America. The agreement resulted in net proceeds before income tax of $ 12,000,000 for the Company, which was recorded as a gain on litigation settlement in operations during the three months ended September 30, 2022. 9. Subsequent Event. The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the condensed consolidated financial statements except for the events described in Note 2 related to the sale of the Legacy Business and the incurring of severance and other separation benefits. 16 Table of Contents