BLOOMIA HOLDINGS, INC. 10-Q

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 financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q (“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, 2022, our Current Reports on Form 8-K and our other SEC filings. Company Overview We are building a scalable non-bank lending business (our “Lending Business”) to purchase existing loans or originate and fund new loans, all of which will be secured by collateral (individually or collectively, the “Secured Loans”). In April 2023, we announced the launch of our Lending Business, through the hiring of a Senior Vice President of Lending with over 20 years of experience in credit and lending. Initially, we intend to focus on loans secured by real estate, primarily for agricultural purposes. We expect to expand our product offerings over time as we identify needs and opportunities in the marketplace for loans generally. Our plan, therefore, is to build a portfolio of well-secured loans, with a portion of the credit risk being participated to third parties in most cases, to maintain a low net loss experience and to charge fully compensatory rates and fees. The primary sources of revenue from our Lending Business are expected to consist of: · interest income earned on assets on the balance sheet, including but not limited to Secured Loans, net of related funding costs and interest payments, and · fee income generated from origination and servicing of Secured Loans. We are building our strategy and long-term growth initiatives upon these fundamental factors: · streamlined systems and processes to support the growth of our core business through connecting customers with competitive funding; · establishment of market presence through direct marketing, purchase of existing loan portfolios, and/or third-party origination agreements; · development of long-term customer relationships; · creation of customized niche products and solutions to support identified customer needs and opportunities in the marketplace; · effective capital and funding structures to maximize returns; · development of mutually beneficial funding and origination partner relationships to expand Company loan volumes and margins over time; and · evaluation of strategic acquisition(s) that align with our initiatives. We face competition from other entities that originate, purchase, securitize, or provide financing for Secured Loans. These entities include commercial and investment banks, insurance companies, Farm Credit System institutions, and financial funds. We plan to compete by controlling overhead costs and by sourcing competitive cost of funds to blend with equity capital to provide flexible financing options and products designed to meet the varied needs of our customers. The relative competitiveness of our loan rates and our ability to grow loan volume are affected by many factors, including: · demand for lending products we offer; · available capital; and · liquidity and cost of funds from third-party funding sources. During the third quarter, the Company increased its marketing activity and met with a number of prospects. We anticipate minimal revenue and losses from continuing operations for the remainder of 2023. 13 Table of Contents We continue to explore other strategic options to maximize stockholder value. Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, start-up of new business or other strategic initiatives. There can be no assurance that this process will result in any transaction or other initiatives. Recent Developments On August 4, 2023 we changed our name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware. As part of the name change, our common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC. On August 3, 2023, we sold certain assets and certain liabilities relating to our former business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “In-Store Marketing Business”) for a sale price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement dated May 24, 2023 (the “Purchase Agreement”). The Company retained accounts receivable, as well as all cash, cash equivalents and marketable securities. The cash consideration for the sale was subject to a post-closing adjustment that depended 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 final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs. 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. We also incurred transaction-related severance and other separation benefits in connection with the termination of certain of our officers and employees of approximately $1,416,000, $490,000 of which was attributed to the sale of the In-Store Marketing Business, as well as retention award payouts totaling $343,000 and employee bonuses totaling $164,000, each of which were recorded as expense in the three months ended September 30, 2023. The sum of transaction-related severance, retention awards and bonuses was $1,923,000, of which $974,000 was recorded in continuing operations and $949,000 was recorded in discontinued operations in the three months ended September 30,2023. Business Overview Summary of Financial Results For the three and nine months ended September 30, 2023, continuing operations, the Lending Business, had no revenue. During the nine months ended September 30, 2023, cash and cash equivalents and restricted cash increased by $515,000 from $14,524,000 at December 31, 2022, to $15,039,000 at September 30, 2023. The increase was primarily driven by collections of accounts receivable from discontinuing the In-Store Marketing Business, as well as proceeds from the sale of the In-Store Marketing Business. We had no debt at September 30, 2023. Working capital increased $2,513,000 from $13,379,000 at December 31, 2022 to $15,892,000 at September 30, 2023. 14 Table of Contents Results of Operations The following table sets forth, for the periods indicated, certain items from our continuing operations in our condensed consolidated statements of operations and the percentage change year-over-year. The Company had no revenue from continuing operations. Three Months Ended September 30 Increase (decrease) from 2022 to 2023 2023 2022 Amount Percent Operating expenses: Sales and marketing $ 69,000 $ - $ 69,000 100.0 % General and administrative 1,564,000 488,000 1,076,000 220.5 % Total operating expenses 1,633,000 488,000 1,145,000 234.6 % Operating loss (1,633,000 ) (488,000 ) (1,145,000 ) 234.6 % Interest income 111,000 55,000 56,000 101.8 % Loss from continuing operations before income taxes (1,522,000 ) (433,000 ) (1,089,000 ) 251.5 % Income tax (benefit) expense (11,000 ) 1,000 (12,000 ) (1200.0 )% Net Loss from continuing operations $ (1,511,000 ) $ (434,000 ) $ (1,077,000 ) 248.2 % Nine Months Ended September 30 Increase (decrease) from 2022 to 2023 2023 2022 Amount Percent Operating expenses: Sales and marketing $ 134,000 $ - $ 134,000 100.0 % General and administrative 2,849,000 1,663,000 1,186,000 71.3 % Total operating expenses 2,983,000 1,663,000 1,320,000 79.4 % Operating loss (2,983,000 ) (1,663,000 ) (1,320,000 ) 79.4 % Interest income 325,000 55,000 270,000 490.9 % Loss from continuing operations before income taxes (2,658,000 ) (1,608,000 ) (1,050,000 ) 65.3 % Income tax (benefit) expense (4,000 ) 5,000 (9,000 ) (180.0 )% Net Loss from continuing operations $ (2,654,000 ) $ (1,613,000 ) $ (1,041,000 ) 64.5 % Three and Nine Months Ended September 30, 2023 Compared to Three and Nine Months Ended September 30, 2022 Operating Expenses Sales and Marketing. Sales and marketing expenses for the three and nine months ended September 30, 2023 were $69,000 and $134,000, consisting of a portion of our CEO’s compensation, as well as website and public relations costs. There was no comparable expense for the three and nine months ended September 30, 2022. General and administrative. General and administrative expenses for the three months ended September 30, 2023 increased 220.5% to $1,564,000 compared to $488,000 for the three months ended September 30, 2022. The increase was primarily due to transaction-related severance and other separation benefits amounting to $926,000 in connection with the termination of Kristine Glancy, our previous CEO. General and administrative expenses for the nine months ended September 30, 2023 increased 71.3% to $2,849,000 compared to $1,663,000 for the nine months ended September 30, 2022. The increase was primarily due to transaction-related severance and other separation benefits in connection with the termination of Kristine Glancy, mentioned above, in addition to the comparison of reduced expense in 2022 from the Director Deferred Compensation Plan due to a reduction in our share price during the nine months ended September 30, 2022. We are working with all our vendors and service providers to reduce certain expenses going forward. Interest Income. Interest income for the three months ended September 30, 2023 was $111,000 compared to $55,000 for the three months ended September 30, 2022. Interest income for the nine months ended September 30, 2023 was $325,000 compared to $55,000 for the nine months ended September 30, 2022. Interest income in 2023 increased over 2022 primarily due to higher invested balances, which included the net proceeds from litigation of $12 million received in July 2022 and the higher interest rates available on investment in short-term treasury bills and interest-bearing savings. 15 Table of Contents Income Taxes. For the three and nine months ended September 30, 2023 the Company recorded income tax (benefit) of $(11,000) and $(4,000) respectively, or 0.6% and 0.1% of loss from continuing operations before income before taxes, respectively. For the three and nine months ended September 30, 2022 the Company recorded income tax expense of $1,000 and $5,000 respectively, or (0.2)% and (0.3)% of loss from continuing operations before income before taxes, respectively. The income tax expense (benefit) for the three and nine months ended September 30, 2023 and 2022 comprises federal and state income taxes. The primary differences between the Company’s September 30, 2023 and 2022 effective tax rates and the statutory federal rate are state income taxes and changes in the Company’s valuation allowance against its deferred tax assets. The Company reassesses its effective tax rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). 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, we consider tax regulations of the jurisdictions in which we operate, 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 September 30, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $41,000 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 $41,000. At December 31, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $2,900,000. As of September 30, 2023, the Company estimates remaining Federal NOL carryforwards to be approximately $1,390,000. 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. Net Loss from Continuing Operations. For the reasons stated above, net loss from continuing operations for the three months ended September 30, 2023 was $1,511,000 and net loss from continuing operations for the nine months ended September 30, 2023 was $2,654,000, compared to net loss from continuing operations of $434,000 and $1,613,000, respectively, for the three and nine months ending September 30, 2022. As we seek to grow our Lending Business, we anticipate minimal revenue and losses from continuing operations for the remainder of the year. Liquidity and Capital Resources We have historically financed our operations with proceeds from stock sales and sales of our services and products, subject to occasional supplemental proceeds from the settlement of litigation. The sale of the In-Store Marketing Business on August 3, 2023 generated approximately $1.6 million of cash, directly from the buyer. At September 30, 2023, working capital (current assets less current liabilities) was $15,892,000, compared to $13,379,000 at December 31, 2022. During the nine months ended September 30, 2023, cash and cash equivalents and restricted cash increased $515,000 from $14,524,000 at December 31, 2022 to $15,039,000 at September 30, 2023. Operating Activities . Net cash used in continuing operating activities during the nine months ended September 30, 2023, was $2,325,000. Net income of $2,738,000, less income from discontinued operations of $2,422,000, less the gain from the sale of discontinued operations of $2,970,000, plus non-cash adjustments of $46,000, plus changes in operating assets and liabilities of $283,000, resulted in the $2,325,000 of cash used in operating activities. The non-cash adjustments consisted of depreciation expense and stock-based compensation expense. The largest component of the change in operating assets and liabilities was accrued liabilities, which increased $630,000 from December 31, 2022. The increase was primarily due to the $650,000 of severance related payments that remains to be paid to the Company’s prior CEO, Ms. Glancy. Investing Activities . Net cash provided by investing activities from continuing operations during the nine months ended September 30, 2023 was $1,557,000, which was due to the proceeds from the sale of our In-Store Marketing Business. Financing Activities . Net cash used in financing activities during the nine months ended September 30, 2023 was $428,000, which related to cash used for the repurchase of common stock, partially offset by proceeds from the issuance of shares per the Director Deferred Compensation Plan for two former non-employee directors. 16 Table of Contents Cash and cash equivalents plus restricted cash at September 30, 2023 were $15.0 million. The Company believes that based upon current business conditions and plans, its cash and cash equivalents balances will be sufficient for its cash requirements for at least the next 12 months. On August 28, 2023, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock. The plan allows the purchases to be made in the open market or in privately negotiated transactions. The plan does not obligate the Company to repurchase any particular number of shares and may be suspended anytime at the Company’s discretion. In the three months ended September 30, 2023, the Company repurchased 75,345 shares at a total cost of $437,000. As the Company grows its Lending Business, we may be required to finance this process through equity offerings or 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 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 Lending Business, or complete transactions related to the strategic alternatives process. 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 allowance for doubtful accounts, income taxes, sales tax, and stock-based compensation expense. 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 1 to the annual financial statements included in Part II, Item 8 of our Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 9, 2023. We believe our most critical accounting estimates include the following: · allowance for doubtful accounts; · sales taxes; · income taxes; and · stock-based compensation expense. Cautionary Statement Regarding Forward-Looking Statements Certain statements made in this Quarterly Report on Form 10-Q, in the Company’s other SEC filings, in press releases and in oral statements to stockholders and securities analysts 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. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “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 and cash generated by operations will provide adequate liquidity and capital resources for at least the next twelve months; and (ii) our belief that we will reduce certain expenses going forward. 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. 17 Table of Contents Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following: Forward-looking statements involve known and unknown risks, uncertainties and other factors, including: (1) the availability of strategic alternatives on acceptable terms, if at all, (2) the limited history of our Lending Business, (3) the substantial risk of loss associated with lending generally, (4) market conditions that may restrict or delay appropriate or desirable Lending Business opportunities, (5) our ability to develop and maintain necessary processes and controls relating to our Lending Business (6) reliance on one or a small number of employees, (7) potential adverse classifications of our Company if we are unsuccessful in executing our business plan, (8) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally; and (9) our ability to attract and retain highly qualified managerial, operational and sales personnel. Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2022 and this Quarterly Report on Form 10-Q, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable.