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Item 1A. Risk Factors

2024-04-01 compared with 2023-03-09 · 208 added, 86 removed, 16 unchanged (95% of the section changed)

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The following are significant factors known to us that could materially adversely affect our business, reputation, operating results, industry, financial position, or future financial performance.

COMPETITIVE AND REPUTATIONAL RISKS

We Face Competition

We compete against other providers of advertising, marketing and merchandising products and services, and providers of point-of-purchase and other in-store solutions, as well as other marketing products and services.

Competition is based on, among other things, rates, availability of markets, quality of products and services provided and their effectiveness, store coverage and other factors.

We believe our positioning and offering in the marketplace is unique with our end-to-end capabilities, however brands and retailers can single-source their needs by working with others in the industry individually.

We realize that by working with Insignia, we cannot always offer the lowest price in the marketplace versus a direct manufacturer, however, we can provide continuity and consistency along the entire project journey while managing the entire project for our clients, whereas they would need to source out design, production and execution individually.

We Have Been Party to Significant Litigation with a Competitor

We were involved in significant litigation with News America Marketing In-Store, Inc.

between 2003 and 2011, which ended with a settlement.

Again, on July 1, 2022, we entered into a $20 million settlement agreement with News America.

The agreement memorializes the amicable settlement of the Company’s lawsuit against News America, which was initially filed in 2019.

While we are not currently party to any significant litigation, the Company is subject to various legal proceedings in the normal course of business.

Further, we could incur significant expenses asserting or defending future claims that could adversely affect our business, financial condition and operating results.

An adverse resolution of any lawsuit or claim in favor of a third party against us, including those we become involved in through mergers and acquisitions transactions, may require us to pay substantial damages or impose restrictions on how we conduct business, either of which could adversely affect our business, financial condition and operating results.

RISKS RELATING TO OUR BUSINESS AND OPERATIONS

We face competition and cannot guarantee our continued ability to compete effectively.

Our Bloomia business competes against other providers of cut tulips and other participants in the broader cut floral industry.

Competition is based on, among other things, price, quality, product perception and ability to fulfill orders, particularly during seasonal peaks.

We face direct competition from other growers as well as indirect competition through retailers who are supplied by our competitors, including on-line flower delivery websites.

If competitors succeed in diverting business from our current customers or capturing a greater share of the overall market for cut tulips or cut flowers generally, Bloomia’s revenues and related operations would be adversely affected, potentially materially.

Our revenue is highly concentrated among a small number of customers.

During calendar 2023, three customers accounted for approximately 64.3% of Bloomia’s revenue.

Although those customers have a history of purchasing fresh-cut tulips from Bloomia, there are no long-term purchase commitments.

If one or more of Bloomia’s traditional customers significantly reduces or ceases purchasing fresh-cut tulips from Bloomia, then Bloomia could experience a significant decrease in revenue.

Bloomia has historically had a high retention rate, with the majority of our significant customers having business relationships in excess of five years.

We may be unable to prevent our competitors from benefiting from the expertise of our former executives.

In connection with the acquisition of Bloomia, we entered into non-compete agreements with its former owners.

These agreements prohibit the former owners from competing with Bloomia’s business for a three-year period from the February 22, 2024 acquisition date.

We may be unable to enforce these agreements under the laws of the jurisdictions in which our business operates and it may be difficult for us to restrict our competitors from benefiting from the expertise that our former owners developed while working for us.

If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former owners and our ability to remain competitive may be diminished.

RISKS RELATING TO ECONOMY AND MARKET CONDITIONS

We are subject to changes in interest rates.

The majority of our debt carries floating interest rates and is subject to interest rate fluctuations.

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

Changes in interest rates are caused by a number of factors beyond our control.

If the SOFR interest rate increases significantly, our interest expense and cash paid for interest will increase, and our ability to obtain additional financing may decrease, which may materially adversely affect our operations.

Our net sales and earnings have been and could continue to be adversely affected by economic conditions and outlook in the markets in which we conduct business.

Adverse economic conditions and outlook in the U.S.

and in other countries in which we conduct business, such as South Africa and South America, have previously and could in the future impact our net sales and earnings.

These adverse economic conditions could include, but are not limited to, business closures, slowdowns, suspensions or delays of production and commercial activity;

recessionary conditions;

slow or negative economic growth rates;

reduced consumer spending levels;

increased or prolonged high unemployment rates;

higher costs, longer lead times, and reduced availability of commodities, components, parts, and accessories, including as a result of transportation-related costs, inflation, changing prices, foreign currency fluctuations, tariffs, and/or duties;

inflationary or deflationary pressures;

reduced infrastructure spending;

the impact of U.S.

federal debt, state debt, and sovereign debt defaults and austerity measures by certain European countries;

reduced credit availability or unfavorable credit terms for our distributors, dealers, and end-user customers;

higher short-term, mortgage, and other interest rates;

government shutdowns;

and general economic and political conditions and expectations.

Fresh cut tulips are something of a discretionary purchase and consumers may reduce purchases of tulips in slower economic times.

In the past, some of these factors have caused and may continue to cause customers to reduce spending and delay or forego purchases of our products, which has had an adverse effect on our net sales and earnings.

STRATEGIC RISKS

The Growth of our Business Is Dependent on Our Ability to Successfully Develop and Design Solution Offerings that Meet Client Demands

Our ability to retain, increase and engage our customers and to increase our revenues will depend partially on our ability to create successful solutions and the ability to secure and maintain access to retailer locations that are appealing to CPG manufacturers.

We may modify our existing products or develop and introduce new products, including acquired products.

If new or enhanced products fail to engage consumers, we may fail to attract or retain customers or to generate sufficient revenues, margins, or other value to justify our investments.

As a result, our business may be adversely affected.

In the future, we may invest in new products and initiatives to generate revenue, but there is no guarantee these approaches will be successful or have the necessary scale to be profitable.

We Face a Number of Risks Associated with Potential Strategic Alternatives

As announced in December 2021, we are conducting a formal process to explore strategic options to maximize shareholder value.

We intend to use reasonable efforts to identify and evaluate potential transactions, and new business opportunities.

Such activities are accompanied by risks commonly encountered in pursuing and completing such transactions, including, but not limited to, increased expenses associated with the process.

Failure to manage the process to a desirable outcome could harm our business, our strategy and our operating results in a material way.

We are in a highly competitive market for a small number of business opportunities, which could reduce the likelihood of consummating one or more strategic alternatives.

We are and will continue to be one of many participants in the pool of companies exploring strategic alternatives.

A large number of established and well-financed entities, including special purpose acquisition companies, other public companies and venture capital firms, are active in mergers and acquisitions of companies that may be competing for similar opportunities or desirable target candidates as us.

Nearly all these entities have significantly greater financial resources, technical expertise, and managerial capabilities than we do;

consequently, we are at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination.

These competitive factors may reduce the likelihood of our identifying and consummating one or more strategic alternatives.

While we are committed to exploring strategic options to maximize shareholder value, our management remains dedicated to operating our existing business and operations.

This and other limitations on time and resources may adversely impact our ability to identify and consummate a successful strategic alternative.

No assurances can be given that we will successfully identify and evaluate suitable business opportunities or that we will consummate any transaction.

We cannot guarantee that we will be able to negotiate a business combination or other transaction on favorable terms.

RISKS RELATED TO ECONOMY AND MARKET CONDITIONS

CPG Manufacturers and Retailers May Be Disproportionately Impacted by Changes in Economic Conditions

Our revenues are affected by CPG manufacturers’ and retailers’ marketing and advertising spending.

Additionally, our revenues and results of operations may be subject to fluctuations based upon general economic conditions inclusive of the dynamic global trade environment.

Recent inflation has increased our costs and we may be limited in our ability to pass cost increase along in pricing to our customers.

Another economic downturn, whether because of the COVID-19 pandemic or otherwise, may reduce demand or depress pricing for our products and services and have an adverse effect on our results of operations.

In addition, if we are unable to successfully anticipate changing economic conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

Future Pandemics May Impact Our Business

A public health crisis, if sufficiently widespread as to affect economic activity, could negatively impact our business.

To the extent that efforts to mitigate the effects of the crisis result in a reduction in demand, inefficiencies due to workplace accommodations, reduced availability of personnel, supply chain disruption, or constraints on materials availability, among other difficulties, our financial condition could be negatively impacted.

In any such event, the severity, duration, and extent of the crisis can be difficult to predict, which can make it difficult to predict or anticipate the magnitude and length of the impact on our sales, profits, and/or cash flow.

We experienced these effects with the onset of the COVID-19 pandemic in early 2020, when our operations and the operations of our CPG customers and retailers were impacted by quarantines, illnesses, and travel and logistics restrictions.

In 2020, the financial impact of COVID-19 was significant as a significant number of programs originally slated for execution in the second quarter were cancelled, in addition to incremental costs incurred due to reduced levels of staffing with our execution partners.

COVID-19 did not have any meaningful direct impact on our financial results in 2022.

However, COVID-19 infections continue, and we cannot predict the severity and duration of additional outbreaks, new variants of the virus, or the future availability of effective medical treatments and vaccines.

We also cannot predict the severity or duration of the financial impact of COVID-19 or any other public health event on our operating results.

Our company’s results are highly dependent on Bloomia’s success.

Although we intend to continue to develop our non-bank lending business, we have committed a substantial portion of our capital to the acquisition and growth of Bloomia’s business.

With this lack of diversification, for at least the near term, our cash flow and ability to service our debt is highly dependent on the performance of the Bloomia business.

Risks inherent in the Bloomia business are discussed in this section.

Failure to successfully manage the recently acquired Bloomia business and other future acquisitions could adversely affect our business.

As part of our strategy to develop our specialty ag and finance strategy, we recently acquired Bloomia, and may make additional acquisitions in the future.

We cannot be certain that the businesses we acquire will become profitable or remain so.

Our management and integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies and finance.

These efforts result in additional expenses and involve significant amounts of management’s time that cannot then be dedicated to other projects.

Factors that will affect the success of our acquisitions include:

the presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies,

our ability or inability to integrate information technology systems of acquired companies in a secure and reliable manner,

any decrease in customer loyalty and product orders caused by dissatisfaction with the Company’s product lines and sales and marketing practices, including price increases,

our ability to retain key employees, and

ability to generate adequate cash flow to service the debt incurred for the acquisitions.

These effects, individually or in the aggregate, could cause a deterioration of our credit and result in increased borrowing costs and interest expense.

We may not generate enough cash or secure enough capital to execute our business plans.

As we develop and grow our businesses, we may be required to finance this process through equity offerings or additional debt financings.

To the extent that we raise additional capital through the sale of equity or debt financing, the ownership interest of our stockholders would 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 our strategy.

OPERATIONAL RISKS

Our Ability to Attract and Retain Key Employees Is Critical to Our Success

Given the unique business we operate and the importance of customer relationships to our business, our future success is dependent, in large part, upon our ability to attract and retain highly qualified managerial, operational and sales personnel.

Competition for talented personnel is intense, and we cannot be certain that we can retain our managerial, operational and sales personnel or that we can attract, assimilate or retain such personnel in the future.

Our inability to attract and retain such personnel could have an adverse effect on our business, results of operations and financial condition.

If We Fail to Establish and Maintain Effective Internal Control over Financial Reporting, We May Not Be Able to Accurately or Timely Report Our Financial Condition or Results of Operations, Which May Adversely Affect Our Business and the Market Price of Our Common Stock.

Restrictions in the Credit Agreement, could adversely affect the Bloomia business, financial condition, and results of operations.

The obligations under the 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 Credit Agreement.

The Credit Agreement contains 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.

The provisions of the Company’s credit agreement or other debt instruments may restrict its ability to obtain additional financing and pursue attractive business opportunities and its flexibility in planning for, and reacting to, changes in business conditions.

In addition, a failure to comply with the provisions of the Company’s credit agreement, any future credit facility or other debt instruments could result in a default or an event of default that could enable its lenders or other debt holders to declare the outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable.

If the payment obligations of Tulp 24.1 or the Company under the Credit Agreement are accelerated, its assets may be insufficient to repay such debt in full.

These factors could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Credit Agreement restricts Tulp 24.1’s ability to make distributions to Lendway.

Under terms of the Credit Agreement, the Bloomia business is permitted to pay a management fee of $60,000 monthly to Lendway, but generally is not permitted to make distributions to its members, including Lendway.

This may constrain cash available to Lendway for corporate expenses and expenses of the Lending Business.

This constraint significantly limits the capital available for the Lending Business, for which we anticipate minimal revenue and losses during the remainder of 2024.

The restriction on distributions will also limit our ability to fund additional strategic acquisitions using capital we have contributed to the Bloomia business.

The Company’s success depends on its key personnel.

The Company’s business results depend largely upon the continued contributions of our CEO Randy Uglem, as it relates to the Lending Business, and Bloomia’s CEO Werner Jansen as it relates to the tulip business.

Jansen no longer serves in (or serves in some lesser capacity than) their current roles, or if the Company loses other members of our management team, we may not be able to successfully execute on our business strategy and our business, financial condition and results of operations, as well as the market price of its securities, could be adversely affected.

If we fail to establish and maintain effective internal control over financial reporting, then we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and the market price of our common stock.

Company management is responsible for establishing and maintaining effective internal controls designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

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Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Given the limited current number of employees, this resource constraint causes challenges in effectively providing appropriate segregation of duties.

Because of the inherent limitations in all internal control systems, internal control over business processes and financial reporting may not prevent or detect fraud or misstatements.

The existence of one or more material weaknesses precludes a conclusion by management that a company’s internal control over financial reporting is effective.

For example, the Company previously identified a material weakness at December 31, 2020 related to sales tax accounting that was remediated as of December 31, 2021.

We are required, pursuant to Section 404 of the Sarbanes Oxley Act (SOX), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting.

This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

As a smaller reporting company, the Company is not required to have an attestation from its external auditor on the effectiveness of its internal control over financial reporting and disclosure controls and procedures.

With regards to its February 2024 acquisition of Bloomia, the Company intends to elect the provision under SOX to exclude the evaluation of internal control over financial reporting and disclosure controls and procedures for Bloomia for a one-year period after the acquisition date.

We cannot assure you that the measures we have taken to date, and actions we may take in the future, will prevent or avoid potential future material weaknesses.

If we are unable to maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities, and our ability to access the capital markets could be limited.

Our Outsourcing Arrangements May Make Us Vulnerable to Third Party Failures

We have arrangements with third parties for them to operate certain software applications and significant portions of our information technology infrastructure, as well as most of our production operations that are necessary to conduct our business.

We take steps to monitor and regulate the performance of these third parties, but we may not be successful in managing these relationships to achieve the desired outcomes.

These outsourcing arrangements make us reliant on third parties to conduct our operations and to satisfy commitments to customers.

We are vulnerable to third party failures to satisfy their obligations to us, including as a result of their nonperformance, performance at standards that are not acceptable to us or our customers, changes in their methods of operation or financial condition, and other matters outside of our control.

RISKS RELATED TO OUR COMMON STOCK

Bloomia’s international operations involve additional market and operational risks, and failure to manage these risks may adversely affect our business and operating results.

We operate in several countries throughout the world including South Africa, Chile and the Netherlands.

Accordingly, we face significant operational risks from doing business internationally, including:

fluctuations in foreign currency exchange rates;

potentially adverse tax consequences;

difficulties in staffing and managing foreign operations;

laws and business practices favoring local competition;

compliance with a wide variety of complex foreign laws, treaties and regulations;

tariffs, trade barriers and other regulatory or contractual limitations on their ability to sell or develop their products in certain foreign markets;

being subject to the laws, regulations and the court systems of many jurisdictions.

Our failure to manage the market and operational risks associated with our international operations effectively could limit the future growth of our business and adversely affect our operating results.

Exchange rate fluctuations between the U.S.

dollar and the Euro and other non-U.S.

currencies may negatively affect the earnings of our operations.

We report our financial results and most of our revenues are recorded in U.S.

However, most of our tulip bulb costs as well as a portion of our general and administrative expenses, are incurred in euros.

As a result, we are exposed to exchange rate risks that may adversely affect our financial results.

For example, if the euro appreciates against the U.S.

dollar, then the U.S.

dollar cost of our operations in the Netherlands would increase and our results of operations would be adversely affected.

From time to time, we engage in currency hedging activities.

These measures, however, may not adequately protect us from material adverse effects due to the fluctuations in the relative values of the U.S.

dollar and the euro and other foreign currencies in which we transact business, and may result in a financial loss.

Failure to comply with the U.S.

Foreign Corrupt Practices Act or other applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.

We are committed to doing business in accordance with applicable anti-corruption laws.

We are subject, however, to the risk that our affiliated entities or our affiliates’ respective officers, directors, employees and agents may take action determined to be in violation of such anti-corruption laws, including the U.S.

Foreign Corrupt Practices Act of 1977 and similar anti-bribery laws in non-U.S.

jurisdictions, as well as trade sanctions administered by the Office of Foreign Assets Control and the U.S.

Department of Commerce.

Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our results of operations.

In addition, actual or alleged violations could damage our reputation and ability to do business.

Compliance with employment laws may adversely affect Bloomia’s business.

With the acquisition of Bloomia, we significantly increased the size and scope of our workforce.

Various federal and state labor laws govern the relationship with Bloomia’s employees in the United States and impact operating costs.

These laws include:

employee classification as exempt or non-exempt for overtime and other purposes;

minimum wage requirements;

unemployment tax rates;

workers’ compensation rates;

immigration status;

mandatory health benefits;

paid leaves of absence, including paid sick leave;

tax reporting;

other wage and benefit requirements.

Although Bloomia verifies the employment eligibility status of its employees, some of its employees may, without Bloomia’s knowledge, be unauthorized workers.

Unauthorized workers are subject to deportation and may subject Bloomia to fines or penalties, and if any of Bloomia’s workers are found to be unauthorized, Bloomia could experience adverse publicity that negatively impacts its brand and may make it more difficult to hire and keep qualified employees.

Termination of a significant number of employees who were unauthorized employees may disrupt Bloomia’s operations, cause temporary increases in its labor costs as it trains new employees and result in additional adverse publicity.

Bloomia could also become subject to fines, penalties and other costs related to claims that it did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws.

Failure to fully comply with one or more of these requirements could have a material adverse effect on the Company’s business, financial condition and results of operations.

Through Bloomia, we are subject to risks inherent in the operation of an agricultural business.

Our business involves agricultural products with the procuring of tulip bulbs and the growing of tulips.

Such business is subject to the risks inherent in the agricultural business, such as insects, plant diseases, government regulations regarding bulb production and similar agricultural risks.

We can reduce, but cannot eliminate, the impacts of adverse weather conditions because the significant majority of our tulips are grown in a hydroponic greenhouse.

Tulip bulbs, like any plant, are subject to quality issues and disease, and we could have significant inventory loss or production delays resulting from low quality tulips.

In June of 2023 Bloomia wrote off $900,000 of tulip bulb inventory due to the bulbs not meeting Bloomia’s quality standards.

The bulbs were sourced during the off-season which we believe contributed to the quality issues and subsequent write-off.

Additionally, although we coordinate with recurring customers to plan production based on anticipated demand and projections, we may have to write down inventory or recognize a material impairment if our production significantly exceeds customer demand.

Accordingly, any of these factors may have a material adverse effect on our inventory and any future production of tulips and a corresponding adverse effect on our results of operations.

Energy and water price increases could adversely impact our profit margins.

Bloomia’s hydroponic greenhouse cultivation process uses significant energy and water.

Certain factors which may impact the availability of energy and water are out of Bloomia’s control including, but not limited to, disruptions resulting from weather, economic conditions, and interruption of energy supply.

Significant increases in the cost or access of energy and water, and the failure to fully pass any such increased prices and costs through to our customers or to modify our activities to mitigate the impact, would have an adverse effect on our production results and operating income.

Inclement weather and other disruptions to the transportation network could adversely impact our distribution system and demand for our products.

Bloomia’s operations rely on dependable and efficient transportation services, the disruption of which could result in difficulties supplying materials to Bloomia’s facilities and impair Bloomia’s ability to deliver products to its retail customers in a timely manner.

Specifically, our ability to receive shipments of tulip bulbs from Bloomia’s Netherlands or Chilean facilities on a timely basis and to provide efficient distribution of our stems to our retail customers are integral components of our overall business strategy.

The volumes handled by, and operating challenges at, ocean ports have at times been volatile and can delay the receipt of tulip bulbs or cause the cost of shipping goods to be more expensive.

Additionally, the availability and reliability of truck transportation has been negatively impacted by a number of factors, including limited availability of qualified drivers and equipment and limitations on drivers’ hours of service.

Impairment in our ability to receive timely shipments of tulip bulbs or distribute stems to our retail customers may affect our ability to both maintain core products in inventory and deliver products to customers on a timely basis, which may in turn adversely affect our consolidated results of operations.

TECHNOLOGY AND CYBERSECURITY RISKS

We rely on our management information systems for inventory management, distribution, and other key functions.

If our information systems fail to adequately perform these functions, or if we experience an interruption in their operation, our business and operating results could be adversely affected.

The efficient operation of our business is dependent on our management information systems, both internal and outsourced.

We rely on our management information systems to, among other things, effectively manage our accounting and financial functions, including maintaining our internal controls, and to manage our procurement, greenhouse, distribution and sales processes.

The failure of our management information systems to perform properly could disrupt our business, which may result in decreased sales, increased overhead costs, excess or obsolete inventory, causing our business and operating results to suffer.

We also have automated processes in our greenhouse operations, which could be adversely impacted by interruptions in their operations.

Although we take steps to secure our management information systems and automated processes, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we have implemented may not be effective and our systems may be vulnerable to theft, loss, damage and interruption from a number of potential sources and events, including unauthorized access or security breaches, natural or man-made disasters, cyber-attacks, computer viruses, power loss, or other disruptive events.

Our reputation, brand, and financial condition could be adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shutdown;

our confidential, proprietary information is stolen or disclosed;

we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information;

we must dedicate significant resources to system repairs or increase cyber security protection;

or we otherwise incur significant litigation or other costs.

RISKS RELATED TO AN INVESTMENT IN OUR COMPANY

Our Results of Operations Have Been and May Be Subject to Significant Fluctuations.

Our quarterly and annual operating results have fluctuated in the past and may vary in the future due to a wide variety of factors including:

the addition or loss of customers or changes in timing and amount of our customers’ spending with us;

the timing of seasonal events for customers;

costs of evaluating and developing new products, and customers accepting new products;

the timing of additional selling, marketing and general and administrative expenses;

competitive conditions in our industry;

the addition or loss of contracts with retailers;

the impact of strategic alternatives activities.

our ability to successfully operate the acquired Bloomia business at the levels of revenue and cash flow planned;

inability to close loans;

changes in interest rates;

the impact of other strategic activities.

Due to these factors, our quarterly and annual net sales, expenses and results of operations could vary significantly in the future, and this could adversely affect the market price of our common stock.

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During 2023, the sale prices of our common stock as reported by The Nasdaq Stock Market ranged from a low of $4.05 to a high of $9.67.

We believe factors such as the fluctuations in our quarterly and annual operating results described above, the market’s acceptance of our services and products, the performance of our business relative to market expectations, strategic alternative exploration, as well as limited daily trading volume of our stock and general volatility in the securities markets, could cause the market price of our common stock to fluctuate substantially.

We believe factors such as the fluctuations in our quarterly and annual operating results described above, the market’s acceptance of our services and products, the performance of our business relative to market expectations, the results of our acquired Bloomia business, as well as limited daily trading volume of our stock and general volatility in the securities markets, could cause the market price of our common stock to fluctuate substantially.

In addition, the stock markets have experienced price and volume fluctuations, resulting in changes in the market prices of the stock of many companies, which may not have been directly related to the operating performance of those companies.

TECHNOLOGY AND CYBERSECURITY RISKS

We May be Impacted if Our Information Systems Are Attacked

We rely upon information technology systems and networks, both internal and outsourced, in connection with a variety of business activities, some of which are managed by third parties.

Additionally, we collect and store data that is sensitive to Insignia and its employees, customers, retailer network and suppliers.

The secure operation of these information technology systems and networks, and the processing and maintenance of this data, is critical to our business operations and strategy.

Information technology security threats—from user error to attacks designed to gain unauthorized access to our systems, networks and data—are increasing in frequency and sophistication.

Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats.

These threats, and a failure to maintain security protocols, pose a risk to the security of our systems, networks and products and the confidentiality, availability and integrity of the data we process and maintain.

Establishing systems and processes to address these threats and changes in legal requirements relating to data collection and storage may increase our costs.

Should such an attack succeed, it could expose us and our employees, customers, retailer network and suppliers to misuse of information or systems, the compromising of confidential information, theft of assets, manipulation and destruction of data, defective products, production downtimes and operations disruptions, and breach of privacy, which may require notification under data privacy and other applicable laws.

The occurrence of any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.

In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.

Unresolved Staff Comments

Smaller reporting companies are not required to provide disclosure pursuant to this Item.

We may need to raise additional capital, which might not be available or might be available only on terms unfavorable to us or our investors.

In order to continue to operate and grow our businesses, we will likely need to raise additional capital beyond this current financing round by offering shares of our common or preferred stock and/or other classes of equity.

All of these would result in dilution to our existing investors, plus they may include additional rights or terms that may be unfavorable to our existing investor base.

We cannot assure you that the necessary funds will be available on a timely basis, on favorable terms, or at all, or that such funds, if raised, would be sufficient.

The level and timing of future expenditure will depend on a number of factors, many of which are outside our control.

If we are not able to obtain additional capital on acceptable terms, or at all, we may be forced to curtail or abandon our growth plans, which could adversely impact the Company, its business, development, financial condition, operating results or prospects.

We may be required to recognize impairment charges that could materially affect our results of operations.

We assess our intangible assets, and our other long-lived assets as and when required by GAAP to determine whether they are impaired.

If they are impaired, we will record appropriate impairment charges.

It is possible that we may be required to record significant impairment charges in the future and, if we do so, our results of operations could be materially adversely affected.

Certain significant stockholders of our company may exert a degree of control in a manner that conflicts with the interests of other stockholders.

Current significant holders of shares may have interests that are different than or adverse to our other stockholders.

Based on public filings with the SEC, we believe that our largest stockholders and its affiliates hold approximately 38.9% of our issued and outstanding common shares.

Based on this share ownership and the simple majority vote of shares present in person or by proxy that is sufficient for the approval of most actions at any stockholders meeting, those stockholders may be able to exercise a certain degree of control over certain matters requiring stockholders’ approval.

Those matters include the election of directors, amendment of our articles of association and approval of significant corporate transactions, subject to rules requiring the approval of a special majority among non-interested stockholders in certain situations.

This control could have the effect of delaying or preventing a change of control of our Company or changes in management and will make the approval of certain transactions difficult without the support of those significant stockholders, including transactions in which a non-significant stockholder might otherwise receive a premium for its shares over the then-current market price.

We could be deemed to have been a “shell company” after completion of the August 2023 asset sale and, as such, we and our stockholders could be restricted in reliance on certain rules or forms.

We have been focused on the successful startup and growth of our Lending Business since before the sale of assets relating to our former In-Store Marketing Business.

Following the recent acquisition of the Bloomia business we have also been focused on managing Bloomia’s operations and growth.

We do not believe that the Company, even after completion of the sale of the In-Store Marketing Business was a “shell company” as described under Rule 405 promulgated under the Securities Act and Rule 12b-2 promulgated under the Exchange Act, which is a company that has:

no or nominal operations;

and either (a) no or nominal assets;

(b) assets consisting solely of cash and cash equivalents;

or (c) assets consisting of any amount of cash and cash equivalents and nominal other assets.

However, a designation as a “shell company” could result in the application of Rule 144(i), which would limit the availability of the exemption from registration provided in Rule 144 for certain shares of Company common stock and could result in certain persons affiliated with the Company being deemed “statutory underwriters under Rule 145(c).

Some of the presently outstanding shares of our common stock are “restricted securities” as defined under Rule 144 promulgated under the Securities Act and may only be sold pursuant to an effective registration statement or an exemption from registration, if available.

Pursuant to Rule 144, if we were designated a “shell company” as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, one year would be required to elapse from the time, we ceased to be a “shell company” and filed a Form 8-K addressing Item 5.06 with such information as may be required in a Form 10 Registration Statement with the SEC, before our restricted stockholders could resell their holdings in reliance on Rule 144.

The Form 10 information or disclosure is equivalent to the information that a company would be required to file if it were registering a class of securities on Form 10 under the Exchange Act.

Under amended Rule 144, restricted or unrestricted securities that were initially issued by a reporting or non-reporting shell company, or a company that was at any time previously a reporting or non-reporting shell company, can only be resold in reliance on Rule 144 if the following conditions are met:

The issuer of the securities that was formerly a shell company has ceased to be a shell company;

The issuer of the securities has filed all reports and material required to be filed under Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding twelve months (or shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports;

At least one year has elapsed from the time the issuer filed the current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

We have never been classified as a “shell company” under rules promulgated under the Securities Act or the Exchange Act.

However, in the event we were to be so designated, we may have to retroactively adjust our reporting or accounting for affected periods.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors