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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-09 · 256 added, 294 removed, 239 unchanged (70% of the section changed)

3 unchanged sentences

Report of Independent Registered Public Accounting Firm (PCAOB ID 542 )

Balance Sheets as of December 31, 2022 and 2021

Statements of Operations for the years ended December 31, 2022 and 2021

Statements of Shareholders’ Equity for the years ended December 31, 2022 and 2021

Statements of Cash Flows for the years ended December 31, 2022 and 2021

Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the board of directors of Insignia Systems, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Insignia Systems, Inc.

(the "Company") as of December 31, 2022 and 2021, the related statements of operations, shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Baker Tilly US, LLP

We have served as the Company's auditor since 2011.

Report of Independent Registered Public Accounting Firm (PCAOB ID 23)

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

Notes to Consolidated Financial Statements

Minneapolis, Minnesota

March 9, 2023

Insignia Systems, Inc.

BALANCE SHEETS

Lendway, Inc., and Subsidiaries

(formerly Insignia Systems, Inc.)

CONSOLIDATED BALANCE SHEETS

As of December 31

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Restricted cash

Accounts receivable, net

Income taxes receivable

Prepaid production costs

Other prepaid expense

Receivable from escrow account

Income tax receivable

Prepaid expense

Other current assets related to discontinued operations

Total Current Assets

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Operating lease right-of-use assets

LIABILITIES AND SHAREHOLDERS' EQUITY

Non-current assets related to discontinued operations

Total Other Assets

LIABILITIES AND STOCKHOLDER'S' EQUITY

Current Liabilities:

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Current portion of operating lease liabilities

Deferred revenue

Current liabilities related to discontinued operations

Total Current Liabilities

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Operating lease liabilities

Non-current liabilities related to discontinued operations

Total Long-Term Liabilities

Commitments and Contingencies

Shareholders' Equity:

Stockholders' Equity:

Common stock, par value $.01:

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( 3,075,000 )

( 13,121,000 )

Total Shareholders' Equity

Total Liabilities and Shareholders' Equity

See accompanying notes to financial statements.

Insignia Systems, Inc.

STATEMENTS OF OPERATIONS

Year Ended December 31

Net services revenues

Cost of services

Total Stockholders' Equity

Total Liabilities and Stockholders' Equity

See accompanying notes to consolidated financial statements.

Lendway, Inc., and Subsidiaries

(formerly Insignia Systems, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31

Operating Expenses:

Sales and marketing

General and administrative

Total Operating Expenses

Gain from litigation settlement, net

Operating Income (Loss)

Operating Loss

( 3,519,000 )

Other Income (Expense):

Gain on forgiveness of debt and accrued interest

Benefit from Employee Retention Credit

Other income (expense)

Total Other Income

Income (Loss) Before Taxes

( 2,442,000 )

Income tax (benefit) expense

Net Income (Loss)

Interest income

Loss from continuing operations before income taxes

( 3,001,000 )

Net income (loss) per share:

( 2,288,000 )

Income tax expense

Net loss from continuing operations

( 3,021,000 )

( 2,294,000 )

Income from discontinued operations, net of tax

Gain from sale of discontinued operations, net of tax

Net income (loss) per basic and diluted share:

Continuing operations

Discontinued operations

Basic and diluted earnings per share

Shares used in calculation of net income (loss) per share:

See accompanying notes to financial statements.

Insignia Systems, Inc.

STATEMENTS OF SHAREHOLDERS' EQUITY

Basic and diluted

See accompanying notes to consolidated financial statements.

Lendway, Inc., and Subsidiaries

(formerly Insignia Systems, Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Additional Paid-In

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Value of stock-based compensation

( 3,534,000 )

Balance at December 31, 2022

$ ( 3,075,000 )

Repurchase of common stock

Issuance of common stock, net

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$ ( 661,000 )

See accompanying notes to financial statements.

Insignia Systems, Inc.

STATEMENTS OF CASH FLOWS

Year Ended December 31

See accompanying notes to consolidated financial statements.

Lendway, Inc., and Subsidiaries

(formerly Insignia Systems, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31

Operating Activities:

Net income (loss)

Income from discontinued operations, net of tax

( 2,474,000 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

( 12,340,000 )

Gain from sale of discontinued operations, net of tax

( 2,961,000 )

Net loss from continuing operations

( 3,021,000 )

( 2,294,000 )

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities of continuing operations:

Depreciation and amortization

Gain on sale of property and equipment

Changes in allowance for doubtful accounts

Stock-based compensation expense

Gain on forgiveness of debt and accrued interest

( 1,062,000 )

Changes in operating assets and liabilities:

Accounts receivable

Income taxes receivable

Receivable from escrow account

Income tax receivable

Prepaid expenses and other

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Accrued income taxes

Deferred revenue

Net cash provided by (used in) operating activities

Net cash used in operating activities of continuing operations

( 2,905,000 )

( 2,837,000 )

Net cash provided by operating activities of discontinued operations

Net cash provided by operating activities

Investing Activities:

Proceeds from sale of business

Purchase of other long-term assets

Purchases of property and equipment

Sale of property and equipment

Net cash used in investing activities

Net cash provided by investing activities of continuing operations

Net cash used in investing activities of discontinued operations

Net cash provided by (used in) investing activities

Financing Activities:

Proceeds from issuance of common stock, net

Cash dividends paid ($0.70 per share)

Repurchase of common stock upon vesting of restricted stock awards and vesting of restricted stock units

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents and restricted cash

( 3,277,000 )

Cash and cash equivalents and restricted cash at beginning of year

Cash and cash equivalents and restricted cash at end of year

Repurchase of common stock, net

Net cash (used in) provided by financing activities

Increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosures for cash flow information:

Cash paid during the year for income taxes

Non-cash investing and financing activities:

Cash paid during the period for income taxes

Non-cash investing and financing activity:

Operating lease right-of-use asset obtained in exchange for lease obligations

Purchase of property and equipment included in accounts payable

See accompanying notes to financial statements.

Insignia Systems, Inc.

Notes to Financial Statements

Purchase of property and equipment included in accrued liabilities

Common stock issued for settlement of accrued liabilities

See accompanying notes to consolidated financial statements.

Lendway, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies .

Description of Business.

Insignia (the “Company”) is a leading provider of in-store solutions to consumer-packaged goods (“CPG”) manufacturers, retailers, shopper marketing agencies and brokerages.

The Company operates in a single reportable segment.

The Company’s leadership and employees have extensive industry knowledge with direct experience in both CPG manufacturers and retailers.

The Company provides marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands.

The Company’s primary solutions are merchandising solutions, on-pack solutions and signage.

Revenue Recognition .

Revenue from merchandising and on-pack solutions is recognized primarily at a point in time.

The Company recognizes revenue from signage solutions ratably over the period of service, which is typically a two-to-four-week display cycle.

Revenue that has been billed and not yet recognized is reflected as deferred revenue on the Company’s balance sheet.

Cash and Cash Equivalents and Restricted Cash .

The consolidated financial statements include the accounts of Lendway, Inc.

(the “Company”), its wholly owned subsidiary, Farmland Credit, Inc., a Minnesota corporation (“FCI”), and FCI’s wholly owned subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC.

All significant inter-company balances and transactions have been eliminated.

The Company has evolved into a specialty agricultural and finance company with operational focus on its agricultural investments.

In April 2023, the Company launched its lending business, through the hiring of a Senior Vice President of Lending with over 20 years of experience in credit and lending.

The Company is seeking to build a scalable non-bank lending business (the “Lending Business”) to purchase existing loans or originate and fund new loans, all of which will be secured by collateral.

As described further in Note 2, on August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s legacy business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “In-Store Marketing Business”).

The operations of the In-Store Marketing Business are presented as discontinued operations.

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

As described further in Note 9, on February 22, 2024, the Company acquired majority ownership in Bloomia B.V.

and its affiliated entities (“Bloomia”) for a price of $ 47.5 million financed with Company cash, a new credit facility and a note payable to the sellers.

Bloomia produces fresh cut tulip stems.

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

Cash and Cash Equivalents .

The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents.

Cash equivalents are stated at cost, which approximates fair value.

Cash and cash equivalents of $ 14,521,000 and $ 3,849,000 were invested in bank accounts, an insured sweep account, a U.S.

Treasury bill and a money market account, at December 31, 2022 and 2021, respectively.

At December 31, 2022, cash equivalents included a short-term U.S.

Treasury bill which matures in March 2023.

Cash and cash equivalents of $ 15,859,000 and $ 14,227,000 were in interest-bearing investments such as an insured sweep account, U.S.

Treasury bills and a money market account at December 31, 2023 and 2022, respectively.

The balances in cash accounts, at times, may exceed federally insured limits.

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Restricted cash

Total cash and cash equivalents and restricted cash

Total cash, cash equivalents and restricted cash

Restricted Cash.

The Company’s restricted cash consists of cash the Company is contractually obligated to maintain in accordance with the terms of the lease for its headquarters space in Minneapolis.

See Note 4 for further discussion.

The Company’s restricted cash consists of cash the Company was contractually obligated to maintain in accordance with the terms of the lease for its headquarters space in Minneapolis.

Fair Value of Financial Instruments .

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The Company records certain financial assets and liabilities at their carrying amounts that approximate fair value, based on their short-term nature.

These financial assets and liabilities included cash and cash equivalents, accounts receivable, and accounts payable.

Accounts Receivable .

The majority of the Company’s accounts receivable is due from companies in the consumer-packaged goods industry.

Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required.

Accounts receivable are due within 30-150 days and are stated at amounts due from customers, net of an allowance for doubtful accounts.

Accounts receivable outstanding longer than the contractual payment terms are considered past due.

The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole.

The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

Changes in the Company’s allowance for doubtful accounts are as follows:

Beginning balance

Bad debt provision

Accounts written-off

Ending balance

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.

Prepaid Production Costs .

For merchandise and on-pack solutions, the Company incurs third party costs for design and materials prior to providing the solution to the customer.

These costs are included in prepaid production costs until the revenue is recognized.

These financial assets and liabilities included cash and cash equivalents, other current assets related to discontinued operations, and accounts payable.

Property and Equipment .

Property and equipment is recorded at cost.

Property and equipment are recorded at cost.

Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred.

Expenditures are capitalized for all development activities, while expenditures related to planning, training, and maintenance are expensed.

Expenditures are capitalized for development activities, while expenditures related to planning, training, and maintenance are expensed.

Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives.

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Estimated useful lives of the assets are as follows:

Production tooling, machinery and equipment

Office furniture and fixtures

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Leasehold improvements

12 – 18 months

The Company determines if an arrangement contains a lease at inception.

Operating leases are included in our operating lease right-of-use (ROU) assets, the current portion of operating lease liabilities, and the operating lease liabilities on the balance sheets.

Operating leases are included in operating lease right-of-use (ROU) assets, the current portion of operating lease liabilities, and the operating lease liabilities on the balance sheets.

The ROU assets represent our right to control the use of an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

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Restructuring.

The Company implemented a plan to restructure its operations in December 2021, including workforce reductions and other cost-saving initiatives.

As part of this restructuring plan, the Company reduced its workforce by approximately 19 %.

A pre-tax restructuring charge of $ 201,000 was recorded during the year ended December 31, 2021.

The Company recorded $ 81,000 of this charge within cost of sales and $ 120,000 within operating expenses in the Company’s statement of operations.

As of December 31, 2021, the $ 201,000 pre-tax restructuring charge was included in accrued compensation and was paid in 2022.

The Company accrues sales taxes based on determination of which of its products/services are subject to sales tax, and in which states and jurisdictions the tax applies.

Further, the Company must determine which of its customers are exempt from the Company charging sales tax because the customer is a reseller or self-assesses and direct pays to states and other jurisdictions on purchases the customer makes from the Company.

These determinations contain estimates and are subject to judgment and interpretation by taxing authorities in various states and other jurisdictions, which could result in recognizing materially different amounts in future periods.

In connection with the change in the Company’s strategy to the specialty agricultural and finance company, the Company’s prior CEO, Kristine A.

Glancy, departed on August 31, 2023.

Included in general and administrative expense of continuing operations is expense of $ 926,000 relating to change of control and other severance related payments and benefits to Ms.

As of December 31, 2023, $ 305,000 remained to be paid to Ms.

Glancy and was included in accrued compensation.

Subsequent to December 31, 2023 this amount was paid to Ms.

Income Taxes .

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The Company has not historically issued any dividends beyond one-time dividends declared in 2011 and 2016 and does not expect to in the future.

Advertising Costs .

Advertising costs are charged to operations as incurred.

Advertising expenses were approximately $ 41,000 and $ 34,000 during the years ended December 31, 2022 and 2021, respectively.

Net Income (Loss) Per Share .

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Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the year.

In determining diluted net income (loss) per share, whether net income from continuing operations is positive or negative controls whether dilutive shares are included in the determination.

For all periods presented, net income from continuing operations is negative, a net loss.

Accordingly, since including dilutive shares would dilute the loss from continuing operations, no dilutive shares are included in any of the per share calculations.

Due to the net loss from continuing operations incurred during the year ended December 31, 2023 and 2022, all outstanding stock awards were considered anti-dilutive for those periods.

Options to purchase approximately 1,000 shares of common stock with a weighted average exercise price of $ 15.54 were outstanding at December 31, 2023.

Options to purchase approximately 53,000 shares of common stock with a weighted average exercise price of $ 11.69 were outstanding at December 31, 2022.

Weighted average common shares outstanding for the years ended December 31, 2023 and 2022 were as follows:

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Denominator for diluted net income (loss) per share - weighted average shares

For the year ended December 31, 2022, the Company excluded stock awards where the market price of the Company’s stock was less than the exercise price of the outstanding stock award.

Options to purchase approximately 45,000 shares of common stock with a weighted average exercise price of $ 11.91 , were outstanding at December 31, 2022 and were not included in the computation of common stock equivalents for the year ended December 31, 2022 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

Options to purchase approximately 22,000 shares of common stock with a weighted average exercise price of $ 12.64 , were outstanding at December 31, 2021 and were not included in the computation of common stock equivalents for the year ended December 31, 2021 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

For the year ended December 31, 2021, all stock awards were anti-dilutive for the period due to the net loss.

Use of Estimates .

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Actual results could differ from these estimates.

New Accounting Pronouncements.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments , which changes the way entities recognize impairment of most financial assets.

This update is effective for the Company for the year ending December 31, 2023 and interim periods within that year.

Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected.

We have evaluated the requirements of this standard on our financial assets and have concluded that the adoption of this ASU, beginning January 1, 2023, will have an immaterial impact on our financial statements.

Revenue Recognition.

Under 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 services.

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:

Display, On-Pack, and Non-POPS Signage Solutions .

The Company supplies CPG manufacturers with retailer approved promotional services, such as display, on-pack, and signage solutions.

These services are more customized than POPS, consisting of variable durations and variable specifications.

Due to the variable nature of these services, revenue recognition is a primarily at a point-in-time recognition.

POPS Signage Solution Services.

The Company provides a service of displaying promotional signs in close proximity to the CPG manufacturer’s product in participating stores, which the Company maintains in two-to-four-week cycle increments.

Each of the individual activities under the Company’s 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 has an enforceable right to payment for services performed to date.

As a result, the Company recognizes the transaction price for service performance obligations as revenue over time.

Given the nature of the Company’s 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.

Year ended December 31

Timing of revenue recognition:

Services transferred over time

Services transferred at a point in time

Contract Costs

Sales commissions paid to internal or external sales representatives are eligible for capitalization because 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.

Sale of In-Store Marketing Business and Presentation as Discontinued Operations.

On August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s In-Store Marketing 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 cash consideration for the sale was 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 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.

The gain on sale (before income taxes) of the In-Store Marketing Business was determined as follows:

Gross sale price

Adjustments per Purchase Agreement

( 1,555,000 )

Adjusted Price

Liabilities assumed in excess of assets

Transaction costs not previously expensed

Gain on sale of In-Store Marketing Business

The Company incurred transaction-related severance and other separation benefits in connection with the termination of certain officers and employees of the discontinued operations of approximately $ 490,000 , as well as retention award payouts totaling $ 343,000 , of which $ 48,000 was included in continuing operations, and employee bonuses totaling $ 164,000 , each of which was recorded as expense in the year ended December 31, 2023.

The results of the In-Store Marketing Business have been presented as discontinued operations and the related assets and liabilities have been classified as related to discontinued operations, for all periods presented.

The carrying amounts of major classes of assets and liabilities that were reclassified as related to discontinued operations on the Consolidated Balance Sheets were as follows:

Current Assets:

Accounts receivable

Prepaid production costs

Other prepaid expense

Current assets related to discontinued operations

Other Assets:

Property and equipment, net

Operating lease right-of-use assets

Non-current assets related to discontinued operations

Current Liabilities:

Accounts payable

Accrued liabilities

Current portion of operating lease liabilities

Deferred revenue

Significant changes in deferred revenue during the period are as follows:

Balance at December 31, 2021

Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied

Cash received in advance and not recognized as revenue

Balance at December 31, 2022

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.

Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $ 57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2022 will be recognized during 2023.

Property and Equipment.

Property and equipment consist of the following at December 31:

Year ended December 31

Property and Equipment:

Production tooling, machinery and equipment

Office furniture and fixtures

Computer equipment and software

Leasehold improvements

Construction in-progress

Accumulated depreciation and amortization

Net Property and Equipment

Depreciation expense for the years ended December 31, 2022 and 2021 was $ 59,000 and $ 60,000 , respectively.

As of December 31, 2022, the Company leases space under two non-cancelable operating leases for its corporate headquarters and for warehouse space.

Both leases have escalating lease payment terms but neither contains a contingent rent provision.

The leases for both the Company’s corporate headquarters and its warehouse include 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, supported by an $ 85,000 deposit, which is reflected as restricted cash on the balance sheet.

The Company used its incremental borrowing rate of approximately 4.8 % in determining the present value of the lease payments based on the information available at the lease commencement date for its two leases.

The exercise of lease renewal options is at the Company’s sole discretion.

In December 2022, the Company decided to exercise the lease renewal option for its corporate headquarters, extending the lease term through December 31, 2026.

Operating lease liabilities and right-of-use assets were increased for lease renewal by $ 38,000 for the year ended December 31, 2022.

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:

Current liabilities related to discontinued operations

Long-Term Liabilities:

Operating lease liabilities

Non-current liabilities related to discontinued operations

Results of discontinued operations are summarized below:

Years Ended December 31

Net services revenues

Cost of services

Operating Expenses:

General and administrative

Total Operating Expenses

Gain from litigation settlement, net

Operating Income

Income from discontinued operations before income taxes

Income tax benefit

Income from discontinued operations, net of tax

Gain from sale of discontinued operations before income taxes

Income tax expense

Gain from sale of discontinued operations, net of tax

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”), 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 resulted in net proceeds before income tax of $ 12,000,000 for the Company, which was recorded as a gain on litigation settlement in the discontinued operations of the In-Store Marketing Business for the year ended December 31, 2022.

The income tax benefit for 2022 included a decrease of approximately $ 678,000 in unrecognized tax benefits related to state exposure in the third quarter of 2022, which reduced accrued income taxes and increased the current tax benefit.

As of December 31, 2023, the Company leased space from a related party under a non-cancelable operating lease for its corporate headquarters.

The lease has monthly payments of $ 375 through September 30, 2025.

The lease does not include a renewal option.

The amounts included in “Other” below relate to an office lease that was terminated on September 30, 2023.

The cost components in continuing operations of the Company’s operating leases were as follows:

Year ended December 31, 2023

Operating lease cost

Variable lease cost

Year ended December 31, 2022

Prior Corporate

Operating Leases - Other

Operating lease cost

Variable lease cost

Short-term lease cost

Variable lease costs are excluded from right-of-use assets and lease liabilities and consist primarily of taxes, insurance, and common area or other maintenance costs for the Company’s leased corporate headquarters which are paid based on actual costs incurred by the lessor.

Short-term lease costs

Maturities of the Company’s lease liabilities for its corporate headquarters and its warehouse operating leases were as follows as of December 31, 2023:

1 unchanged sentence

Present value of lease liabilities

The Company used its incremental borrowing rate of approximately 6.0 % in determining the present value of the lease payments based on the information available at the lease commencement date.

The remaining lease term as of December 31, 2023 for the Company’s corporate headquarters is 1.8 years.

The warehouse lease which was set to expire on March 31, 2023 was extended on month-to-month basis with payments of $1,600 per month.

The cash outflow for operating leases for the years ended December 31, 2022 and December 31, 2021 were $ 84,000 and $ 97,000 , respectively.

The cash outflow for operating leases including discontinued operations for the years ended December 31, 2023 and 2022 were $ 28,000 and $ 28,000 , respectively.

Commitments and Contingencies.

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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.

Retailer Agreements .

The Company had contracts in the normal course of business with various retailers.

Due to the decline of POPS revenue all fixed or store-based payment commitments have been eliminated, and the Company incurred no such costs for the year ended December 31, 2022.

Shareholders’ Equity .

Stockholders’ Equity .

Stock-Based Compensation .

The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors, which, subject to approval by the Board of Directors, selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the award.

The following table summarizes the stock-based compensation expense that was recognized in the Company’s statements of operations for the years ended December 31, 2022 and 2021:

Year ended December 31

Cost of sales

General and administrative

Stock-based compensation expense that was recognized in the continuing operations of the Company’s consolidated statements of operations for the years ended December 31, 2023 and 2022 was $ 39,000 and $ 91,000 , respectively.

Stock based compensation for discontinued operations for the years ended December 31, 2023 and 2022 was $ 5,000 and $ 32,000 , respectively

The Company uses the Black-Scholes option pricing model to estimate fair value of stock-based awards with the following weighted-average assumptions:

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Stock Options, Restricted Stock, Restricted Stock Units, and Other Stock-Based Compensation Awards .

The Company maintains the 2003 Incentive Stock Option Plan (the “2003 Plan”), the 2013 Omnibus Stock and Incentive Plan (the “2013 Plan”) and the 2018 Equity Incentive Plan (the “2018 Plan”).

The 2018 Plan replaced the 2013 Plan upon its ratification by shareholders in July 2018.

No further awards may be granted under the 2013 Plan or the 2003 Plan.

Awards granted under the 2003 Plan and 2013 Plan will remain in effect until they are exercised or expire according to their terms.

Under the terms of the 2018 Plan, the number of shares of our common stock that may be the subject of awards and issued under the 2018 Plan was initially 128,571 plus any shares remaining available for future grants under the 2013 Plan on the effective date of the 2018 Plan.

Under the terms of the 2018 Plan, the Company may grant awards in a variety of instruments including stock options, restricted stock and restricted stock units to employees, consultants and directors generally at an exercise price at or above 100% of fair market value at the close of business on the date of grant.

The Company maintains stock and incentive plans (the “Plans).

Under the terms of the Plans, the Company may grant awards in a variety of instruments including stock options, restricted stock and restricted stock units to employees, consultants and directors generally at an exercise price at or above 100% of fair market value at the close of business on the date of grant.

Stock options expire 10 years after the date of grant and generally vest over three years.

The Company issues new shares of common stock upon grant of restricted stock, when stock options are exercised, and when restricted stock units are vested and/or settled.

The following table summarizes activity under the 2003, 2013 and 2018 Plans:

The following table summarizes activity under the Plans:

Plan Shares Available for Grant

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Balance at January 1, 2022

Restricted stock units and awards granted - 2018 Plan

Cancelled or forfeited - 2018 Plan options

Cancelled or forfeited - 2018 Plan restricted stock and restricted stock units

Restricted stock units and awards granted

Stock options exercised

Cancelled or forfeited - 2013 Plan options

Cancelled or forfeited - 2013 Plan restricted stock and restricted stock units

Cancelled or forfeited - 2003 Plan options

Cancelled or forfeited options

Balance at December 31, 2022

Restricted stock units and awards granted - 2018 Plan

Stock options exercised

Cancelled or forfeited - 2013 Plan options

Cancelled or forfeited - 2003 Plan options

Cancelled or forfeited options

Balance at December 31, 2023

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Weighted Average Exercise Price Per Share

Options outstanding under the Plans expire at various dates from May 2024 through August 2028.

Options outstanding at December 31, 2022 had no intrinsic value.

Options outstanding at December 31, 2021 had an intrinsic value of $ 188,322 .

Options outstanding under the Plans expire in May 2024.

Options outstanding at December 31, 2023 and 2022 had no intrinsic value.

Options exercisable at December 31, 2022 had a weighted average remaining life of 4.44 years and no intrinsic value.

The 15,726 options exercisable at December 31, 2021 had a weighted average remaining life of 3.82 years and an aggregate intrinsic value of $ 156,298 .

During the years ended December 31, 2022 and 2021, no equity awards were issued by the Company, except for the following annual awards to non-employee members of the Board of Directors.

In August 2022, non-employee members of the Board of Directors received restricted stock grants totaling 6,248 shares pursuant to the 2018 Plan.

The shares underlying the awards were assigned a value of $ 9.60 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 $ 60,000 .

The shares are scheduled to vest the earlier of August 4, 2023 or the day immediately preceding the date of the next annual shareholder meeting.

In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Plan.

During the year ended December 31, 2023 and 2022, no equity awards were issued by the Company except for the following awards to non-employee members of the Board of Directors.

In August 2022, non-employee members of the Board of Directors received restricted stock grants totaling 6,248 shares.

The shares vested June 1, 2022.

The shares vested July 26, 2023.

Restricted stock and restricted stock unit transactions during the years ended December 31, 2023 and 2022 are summarized as follows:

As of December 31, 2023, there was no unrecognized compensation costs related to outstanding stock options or restricted stock.

Number of Shares

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Unvested shares at January 1, 2022

Forfeited or surrendered

Unvested shares at December 31, 2022

Unvested shares at December 31, 2023

As of December 31, 2022, there were no unrecognized compensation costs related to outstanding stock options.

As of December 31, 2022, there was approximately $ 32,000 of total unrecognized compensation costs related to restricted stock and restricted stock units, which is expected to be recognized over a weighted average period of 0.6 years.

Employee Stock Purchase Plan.

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At December 31, 2023, 22,945 shares were reserved for future employee purchases of common stock under the ESPP.

For the years ended December 31, 2022 and 2021, the Company recognized $ 60,000 and $ 23,000 , respectively, of stock-based compensation expense related to the ESPP.

For the years ended December 31, 2023 and 2022, the Company recognized $ 7,000 and $ 32,000 , respectively, of stock-based compensation expense related to the ESPP that was recognized in the continuing operations.

The Company has not historically paid dividends, other than one-time dividends declared in 2011 and 2016.

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Income Taxes .

Income tax expense (benefit) consists of the following:

Income tax expense from continuing operations consists of the following:

Year Ended December 31

2 unchanged sentences

Income tax expense

$ ( 218,000 )

The actual tax (expense) benefit attributable to income (loss) before taxes differs from the expected tax benefit (expense) computed by applying the U.S.

The actual tax (expense) benefit attributable to income (loss) from continuing operations before taxes differs from the expected tax benefit (expense) computed by applying the U.S.

federal corporate income tax rate of 21% as follows:

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Stock-based awards

Impact of uncertain tax positions

State benefit

Valuation allowance

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( 1,175,000 )

( 3,146,000 )

Total deferred tax assets

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Total deferred tax liabilities

Net deferred income tax liabilities

As of December 31, 2022, the Company had a Federal pre-tax net operating loss (NOL) to carry forward of approximately $ 2,900,000 and state NOLs of approximately $ 3,500,000 to carry forward.

Net deferred income tax

As of December 31, 2023, the Company had a Federal pre-tax net operating loss (NOL) to carry forward of approximately $ 1,607,000 and state pre-tax NOLs of approximately $ 2,914,000 to carry forward.

The Federal NOLs can be carried forward indefinitely.

3 unchanged sentences

The underlying assumptions the Company uses in forecasting future taxable income require significant judgment and take into consideration the Company’s recent performance.

The change in the valuation allowance for the years ended December 31, 2022 and 2021 was a decrease of $ 1,971,000 and an increase of $ 1,200,000 , respectively.

The valuation allowance decrease in 2022 was primarily related to the utilization of the Company’s net operating loss carryforward against the Company’s taxable income.

The change in the valuation allowance for the years ended December 31, 2023 and 2022 was a decrease of $ 530,000 and $ 1,970,000 , respectively.

The valuation allowance decreases in 2023 and 2022 were primarily related to the utilization of the Company’s net operating losses carried forward against the Company’s taxable income.

Such utilization was limited to 80 % of the Company’s taxable income for the year.

The Company has recorded a liability of $ 53,000 and $ 711,000 for uncertain tax positions taken in tax returns in previous years as of December 31, 2022 and 2021, respectively.

The Company has recorded a liability of $ 42,000 and $ 53,000 for uncertain tax positions taken on tax returns in previous years as of December 31, 2023 and 2022, respectively.

This liability is reflected as accrued income taxes on the Company’s balance sheets.

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The Company has recorded a decrease of approximately $ 16,000 in unrecognized tax benefits related to state exposure in the third quarter of 2023, which reduced accrued income taxes and increased the current income tax benefit.

The Company has determined it is no longer more likely than not that the Company will realize the tax expense.

The Company determined it was no longer more likely than not that the Company would realize the tax expense.

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows:

Balance at January 1, 2022

Decrease due to state tax expense

Increases due to interest and state tax

6 unchanged sentences

The plan allows employees to defer up to 50 % of their wages, subject to Federal limitations, on a pre-tax basis through contributions to the plan.

During the years ended December 31, 2022 and 2021, the Company’s expense for matching contributions was $ 53,000 and $ 41,000 , respectively.

Concentrations.

Major Customers .

During the year ended December 31, 2022, three customers accounted for 19 %, 11 % and 11 %, respectively of the Company’s total net sales.

At December 31, 2022, three customers represented 20 %, 19 % and 11 % respectively of the Company’s total accounts receivable.

During the year ended December 31, 2021, two customers accounted for 15 % and 12 %, respectively of the Company’s total net sales.

At December 31, 2021, two customers represented 25 % and 19 %, respectively of the Company’s total accounts receivable.

Export Sales .

Export sales accounted for less than 1% of total net sales during the years ended December 31, 2022 and 2021.

In April 2020, the Company entered into a loan agreement in the amount of $ 1,054,000 pursuant to the Paycheck Protection Program (the “PPP”) of the CARES Act.

The Company’s application for forgiveness of the amount due under the loan, including accrued interest, was approved by the U.S.

Small Business Administration on January 29, 2021.

Accordingly, for the year ended December 31, 2021, the debt of $ 1,054,000 , plus accrued interest of $ 8,000 was eliminated with a gain on debt extinguishment included in other income.

During the years ended December 31, 2023 and 2022, the Company’s expense in continuing operations for matching contributions was $ 13,000 and $ 8,000 , respectively.

Stock Repurchases.

On August 23, 2023, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock.

The authorization allows the purchases to be made in the open market or in privately negotiated transactions.

The authorization does not obligate the Company to repurchase any particular number of shares;

and may be suspended anytime at the Company’s discretion.

During the year ended December 31, 2023, the Company repurchased 84,028 shares for $ 482,000 .

Subsequent Events

Acquisition of Bloomia

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

and its subsidiaries for a price of $ 47.5 million.

The acquisition price was paid with $ 9.2 million of the Company’s cash, $ 22.8 million of proceeds from a new credit facility, and notes payable of $ 15.5 million to the sellers.

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

Lendway owns a significant majority and is the managing member of Tulp 24.1, LLC, which holds the Bloomia enitities.

Bloomia’s continuing CEO owns the remaining approximately 18.6 % of Tulp 24.1, LLC.

The acquisition will be accounted for as a business combination using the acquisition method of accounting.

The acquisition method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

Due to the limited amount of time since the acquisition date and the complexity of Bloomia’s financial records prepated under Dutch GAAP, the preliminary acquisition valuation for the business combination is incomplete at this time.

As a result, the Company is unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill.

The unaudited pro forma net sales of the combined entity for the twelve months ended December 31, 2023 are approximately $ 45 million.

The unaudited pro forma net sales of the combined entity are based on historical net sales from continuing operations from Lendway and the net sales for Bloomia.

The unaudited pro forma net sales values are not necessarily indicative of the results that would have been obtained if the acquisition had occurred as of the beginning of 2023 or that may be obtained in the future.

Because the initial accounting for the business combination is incomplete at this time, the Company is unable to provide pro forma net earnings of the combined entity.

Credit Agreement

To finance the Bloomia acquisition, the Company entered into a revolving credit and term loan agreement (the “Credit Agreement”), together with Tulp 24.1 as the borrower.

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

The Credit Agreement also contains a $ 6.0 million revolving credit facility, which may be used by the Company for general business purposes and working capital.

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%.

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

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

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

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

The 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.

Commencing with the fiscal quarter ending on March 31, 2024, the Credit Agreement will require Tulp 24.1 and its subsidiaries to maintain (a) a minimum fixed charge coverage ratio of not less than 1.25 to 1.00 and (b) a maximum senior cash flow leverage ratio of 3.0 to 1.0 until September 30, 2024, and stepping down to 2.00 to 1.00 on December 31, 2027 , until the maturity date of the Credit Agreement.

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

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

Notes Payable to Sellers

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

Notes payable for $ 12.8 million have a term of five years, subject to requiring principal payments based on “excess cash flow” as defined.

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

Notes payable for $ 2.7 million have a term of nine calendar weeks after the closing date.

Interest is at 8 %.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

On November 20, 2023, the Audit Committee (the “Committee”) of the Board of Directors of the Company approved the dismissal of Baker Tilly US, LLP (“Baker Tilly”) as the Company’s independent registered public accounting firm, effective immediately.

On November 20, 2023, the Committee approved the appointment of Boulay PLLP as the Company’s independent registered public accounting firm to perform independent audit services, including the audit of the Company’s consolidated financial statements for the fiscal year ending December 31, 2023.

Our independent registered public accounting firms’ reports on our consolidated financial statements for each of the past two years did not contain adverse opinions or disclaimers of opinions, and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

In connection with the audit of the Company’s financial statements for the fiscal years ended December 31, 2022, and the subsequent interim period through September 30, 2023, (i) there were no disagreements with Baker Tilly on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Baker Tilly’s satisfaction, would have caused Baker Tilly to make reference, in connection with its opinion, to the subject matter of such disagreements and (ii) there was no “reportable event” as defined in Item 304(a)(1)(v) of Regulation S-K.

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 8. Financial Statements and Supplementary Data