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Item 2. Management’s Discussion and Analysis

2024-05-21 compared with 2023-11-14 · 240 added, 137 removed, 34 unchanged (92% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company’s financial statements and related notes.

The following discussion should be read in conjunction with the Company’s condensed consolidated financial statements and related notes.

This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q (“10-Q”) and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, our Current Reports on Form 8-K and our other SEC filings.

Our actual results could differ materially from those in such forward-looking statements as a result of many factors, including those discussed in “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, our Current Reports on Form 8-K and our other SEC filings.

Company Overview

We are building a scalable non-bank lending business (our “Lending Business”) to purchase existing loans or originate and fund new loans, all of which will be secured by collateral (individually or collectively, the “Secured Loans”).

In April 2023, we announced the launch of our Lending Business, through the hiring of a Senior Vice President of Lending with over 20 years of experience in credit and lending.

The Company has evolved into a specialty agricultural and finance company focused on making and managing its agricultural investments in the United States and internationally.

In 2023 and in the first quarter of 2024, the Company took three major steps in this evolution.

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 to purchase existing loans or originate and fund new loans, all of which will be secured by collateral.

On August 3, 2023, the Company completed the sale of its 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.

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

and its subsidiaries (“Bloomia”).

Bloomia produces and sells fresh cut tulips.

As a result of the Bloomia acquisition, the Company has two segments:

Bloomia (the “Bloomia Business”) and the Lending Business.

Bloomia Business

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

Bloomia is a leading producer of fresh cut tulips in the United States, nurturing over 75 million stems annually.

Net sales (unaudited) of Bloomia for the twelve months ended December 31, 2023 and 2022 were approximately $45 million and $43 million, respectively.

Bloomia was founded in the Netherlands and is now strategically positioned in the United States, Netherlands, South Africa and Chile.

Bloomia has relationships with prominent U.S.

mass market retailers.

The Company acquired Bloomia for $53,360,000.

Consideration comprised of $34,919,000 of cash paid, $15,451,000 of seller bridge loans in lieu of cash, and $2,990,000 of equity issued of Tulp 24.1 which is reflected as noncontrolling interest within these condensed consolidated financial statements.

The acquisition was funded through a combination of debt and cash on hand.

Non-Bank Lending Business

While the Company’s primary near-term focus will be on the Bloomia business, the Company plans to continue building a scalable non-bank lending business (our “Lending Business”) to purchase existing loans or originate and fund new loans, all of which will be secured by collateral.

Initially, we intend to focus on loans secured by real estate, primarily for agricultural purposes.

We expect to expand our product offerings over time as we identify needs and opportunities in the marketplace for loans generally.

Our plan, therefore, is to build a portfolio of well-secured loans, with a portion of the credit risk being participated to third parties in most cases, to maintain a low net loss experience and to charge fully compensatory rates and fees.

The primary sources of revenue from our Lending Business are expected to consist of:

interest income earned on assets on the balance sheet, including but not limited to Secured Loans, net of related funding costs and interest payments, and

fee income generated from origination and servicing of Secured Loans.

We are building our strategy and long-term growth initiatives upon these fundamental factors:

streamlined systems and processes to support the growth of our core business through connecting customers with competitive funding;

establishment of market presence through direct marketing, purchase of existing loan portfolios, and/or third-party origination agreements;

development of long-term customer relationships;

creation of customized niche products and solutions to support identified customer needs and opportunities in the marketplace;

effective capital and funding structures to maximize returns;

development of mutually beneficial funding and origination partner relationships to expand Company loan volumes and margins over time;

evaluation of strategic acquisition(s) that align with our initiatives.

We face competition from other entities that originate, purchase, securitize, or provide financing for Secured Loans.

These entities include commercial and investment banks, insurance companies, Farm Credit System institutions, and financial funds.

We plan to compete by controlling overhead costs and by sourcing competitive cost of funds to blend with equity capital to provide flexible financing options and products designed to meet the varied needs of our customers.

The relative competitiveness of our loan rates and our ability to grow loan volume are affected by many factors, including:

demand for lending products we offer;

available capital;

liquidity and cost of funds from third-party funding sources.

During the third quarter, the Company increased its marketing activity and met with a number of prospects.

We anticipate minimal revenue and losses from continuing operations for the remainder of 2023.

We continue to explore other strategic options to maximize stockholder value.

Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, start-up of new business or other strategic initiatives.

There can be no assurance that this process will result in any transaction or other initiatives.

Recent Developments

On August 4, 2023 we changed our name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware.

As part of the name change, our common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC.

On August 3, 2023, we sold certain assets and certain liabilities relating to our former business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “In-Store Marketing Business”) for a sale price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc.

(the “Buyer”), under an Asset Purchase Agreement dated May 24, 2023 (the “Purchase Agreement”).

The Company retained accounts receivable, as well as all cash, cash equivalents and marketable securities.

The cash consideration for the sale was subject to a post-closing adjustment that depended on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs.

The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs.

Under the Purchase Agreement, $200,000 was escrowed for a twelve month period for any future claims, as defined in the Purchase Agreement by the Buyer against the Company.

We also incurred transaction-related severance and other separation benefits in connection with the termination of certain of our officers and employees of approximately $1,416,000, $490,000 of which was attributed to the sale of the In-Store Marketing Business, as well as retention award payouts totaling $343,000 and employee bonuses totaling $164,000, each of which were recorded as expense in the three months ended September 30, 2023.

The sum of transaction-related severance, retention awards and bonuses was $1,923,000, of which $974,000 was recorded in continuing operations and $949,000 was recorded in discontinued operations in the three months ended September 30,2023.

Business Overview

The Company met with a number of prospects for loan originations and/or purchases since the start of the lending business.

Deals were negotiated, but ultimately did not close.

With the Company’s decision to allocate capital to the Bloomia acquisition, capital available for the lending business will be significantly constrained in the near term.

Accordingly, we anticipate minimal revenue and operating losses from the lending business during the remainder of 2024.

Summary of Financial Results

For the three and nine months ended September 30, 2023, continuing operations, the Lending Business, had no revenue.

During the nine months ended September 30, 2023, cash and cash equivalents and restricted cash increased by $515,000 from $14,524,000 at December 31, 2022, to $15,039,000 at September 30, 2023.

The increase was primarily driven by collections of accounts receivable from discontinuing the In-Store Marketing Business, as well as proceeds from the sale of the In-Store Marketing Business.

We had no debt at September 30, 2023.

Working capital increased $2,513,000 from $13,379,000 at December 31, 2022 to $15,892,000 at September 30, 2023.

The Bloomia Business was acquired on February 22, 2024, from which date, the Bloomia Business had revenue of $8,033,000 through March 31, 2024.

The income before taxes of the segment was $1,091,000, which included significant expenses related to the Acquisition.

The Bloomia business is highly seasonal with strongest sales months normally from February through May that coincides with Spring in the U.S.

and certain holidays.

For the periods ended March 31, 2024 and 2023, the Company had revenue from continuing operations of $8,033,000 and $nil, respectively.

The Lending Business had no revenue and had a net loss from continuing operations before income taxes of $325,000.

The corporate and other portion of the Company had no revenue and a net loss from continuing operations before income taxes of $2,449,000, which includes significant expenses related to the acquisition.

Adjusted EBITDA from continuing operations for the three months ended March 31, 2024 was $1,745,000.

With the Bloomia acquisition completed on February 22, 2024 for an aggregate purchase price totaling $53,360,000, cash and cash equivalents decreased by $11,064,000 from $16,077,000 at December 31, 2023, to $5,013,000 at March 31, 2024.

Working capital decreased $4,335,000 from $15,483,000 at December 31, 2023 to $11,148,000 at March 31, 2024.

At March 31, 2024, the Company has total debt under its Credit Agreement and Bridge Loans of $37,425,000.

Results of Operations

The following table sets forth, for the periods indicated, certain items from our continuing operations in our condensed consolidated statements of operations and the percentage change year-over-year.

The Company had no revenue from continuing operations.

Three Months Ended

Increase (decrease) from

Operating expenses:

Sales and marketing

General and administrative

Total operating expenses

Operating loss

Interest income

Loss from continuing operations before income taxes

Income tax (benefit) expense

Net Loss from continuing operations

$ (1,511,000 )

$ (1,077,000 )

Nine Months Ended

Increase (decrease) from

Operating expenses:

Sales and marketing

General and administrative

Total operating expenses

Operating loss

Interest income

Loss from continuing operations before income taxes

The following table sets forth, certain items in our Consolidated Statements of Operations as a percentage of total net sales.

For the Three Months Ended March 31

Cost of goods sold

Sales, general and administrative

Operating (loss) income

Other income and foreign exchange difference

Loss from continuing operations, before tax

Income tax benefit (expense)

Net Loss from continuing operations

$ (2,654,000 )

$ (1,613,000 )

$ (1,041,000 )

Three and Nine Months Ended September 30, 2023 Compared to Three and Nine Months Ended September 30, 2022

Income from discontinued operations, net of tax

Net (loss) income

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Revenue, Net.

Revenue, net for the three months ended March 31, 2024 were $8,033,000, all of which were from Bloomia for the period from its acquisition on February 22, 2024 (“the acquisition date”) through March 31, 2024 (the “acquisition period”).

The first and second calendar quarters are normally the strongest sales quarters for Bloomia with the first calendar quarter benefiting from Valentine’s Day, Easter season and the start of the Spring season.

The Company added two additional retail customers over the prior period.

Gross Profit.

Gross profit for the acquisition period ended March 31, 2024 was $1,894,000 or 23.6% as a percentage of revenue.

Gross margin percentage is typically higher in the first and second quarters since sales are typically higher and allow better leverage of fixed costs in costs of sales.

For purchase accounting, the inventory was written up to fair value on the acquisition date.

This write-up is amortized over the turnover of the inventory and the acquisition period included $1,360,000 of costs related to this amortization.

Operating Expenses

Sales and Marketing.

Sales and marketing expenses for the three and nine months ended September 30, 2023 were $69,000 and $134,000, consisting of a portion of our CEO’s compensation, as well as website and public relations costs.

There was no comparable expense for the three and nine months ended September 30, 2022.

General and administrative.

General and administrative expenses for the three months ended September 30, 2023 increased 220.5% to $1,564,000 compared to $488,000 for the three months ended September 30, 2022.

The increase was primarily due to transaction-related severance and other separation benefits amounting to $926,000 in connection with the termination of Kristine Glancy, our previous CEO.

General and administrative expenses for the nine months ended September 30, 2023 increased 71.3% to $2,849,000 compared to $1,663,000 for the nine months ended September 30, 2022.

The increase was primarily due to transaction-related severance and other separation benefits in connection with the termination of Kristine Glancy, mentioned above, in addition to the comparison of reduced expense in 2022 from the Director Deferred Compensation Plan due to a reduction in our share price during the nine months ended September 30, 2022.

We are working with all our vendors and service providers to reduce certain expenses going forward.

Interest Income.

Interest income for the three months ended September 30, 2023 was $111,000 compared to $55,000 for the three months ended September 30, 2022.

Interest income for the nine months ended September 30, 2023 was $325,000 compared to $55,000 for the nine months ended September 30, 2022.

Interest income in 2023 increased over 2022 primarily due to higher invested balances, which included the net proceeds from litigation of $12 million received in July 2022 and the higher interest rates available on investment in short-term treasury bills and interest-bearing savings.

Sales, general and administrative.

Sales, general and administrative expenses for the three months ended March 31, 2024 increased 439% to $3,388,000 compared to $628,000 for the three months ended March 31, 2023.

The increase was primarily due to $1,542,000 of one-time acquisition related expenses and expanded operations from the acquisition of Bloomia during the acquisition period.

Interest Income and Expense.

Interest expense for the three months ended March 31, 2024 was $225,000 compared to interest income of $103,000 for the three months ended March 31, 2023.

In connection with the Bloomia acquisition, the Company began incurring interest expenses starting February 21, 2024 which amounted to $352,000 during the acquisition period.

The Company has not hedged the risk of its interest expense if the Term SOFR reference rate increases.

Income Taxes.

For the three and nine months ended September 30, 2023 the Company recorded income tax (benefit) of $(11,000) and $(4,000) respectively, or 0.6% and 0.1% of loss from continuing operations before income before taxes, respectively.

For the three and nine months ended September 30, 2022 the Company recorded income tax expense of $1,000 and $5,000 respectively, or (0.2)% and (0.3)% of loss from continuing operations before income before taxes, respectively.

The income tax expense (benefit) for the three and nine months ended September 30, 2023 and 2022 comprises federal and state income taxes.

The primary differences between the Company’s September 30, 2023 and 2022 effective tax rates and the statutory federal rate are state income taxes and changes in the Company’s valuation allowance against its deferred tax assets.

The Company reassesses its effective tax rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws.

In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies.

If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required.

Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

As of September 30, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $41,000 and $53,000, respectively, including interest, which relates to state nexus issues.

For the three months ended March 31, 2024, the Company recorded an income tax benefit of 20.6% on loss from continuing operations.

The rate differs from the federal statutory rate of 21% due to state taxes of 4.7%, valuation allowance change of 17.6% and nondeductible transaction costs and other permanent items of (22.7)%.

For the three months ended March 31, 2023, the Company recorded an income tax expense of .2% on loss from continuing operations before income taxes.

The rate differs from the federal statutory rate of 21% due to state taxes of 3.5%, valuation allowance change of (22.6)% and other permanent items of (1.7)%.

For the three months ended March 31, 2024, the Company recorded an income tax benefit of $347,000 on the loss from continuing operations before income taxes and equity in net income of equity investment.

The overall benefit of $347,000 includes a $451,000 benefit for the reversal of the valuation allowance on federal deferred tax assets.

During the quarter the Company established deferred tax liabilities related to the acquisition in the majority ownership of Bloomia.

The Company anticipates that the deferred tax liabilities will result in future taxable income that will allow for the realization of the federal deferred tax assets.

As of March 31, 2024, and December 31, 2023, the Company had unrecognized tax benefits totaling $42,000, including interest, which relates to state nexus issues.

The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $42,000.

At December 31, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $2,900,000.

As of September 30, 2023, the Company estimates remaining Federal NOL carryforwards to be approximately $1,390,000.

Federal NOL utilization is limited to 80% of estimated taxable income.

The estimated NOL carry forward will be adjusted at year end for actual results.

Net Loss from Continuing Operations.

For the reasons stated above, net loss from continuing operations for the three months ended September 30, 2023 was $1,511,000 and net loss from continuing operations for the nine months ended September 30, 2023 was $2,654,000, compared to net loss from continuing operations of $434,000 and $1,613,000, respectively, for the three and nine months ending September 30, 2022.

As we seek to grow our Lending Business, we anticipate minimal revenue and losses from continuing operations for the remainder of the year.

For the reasons stated above, net loss from continuing operations for the three months ended March 31, 2024 was $1,336,000, compared to loss of $528,000 for the three months ended March 31, 2023.

Income from Discontinued Operations, Net of Tax.

For the three months ended March 31, 2024 the Company recognized approximately $72,000 of benefit in Sales, general and administrative expense of discontinued operations from the reduction in the accrual for sales tax due the expiration of the statute of limitations.

Income from discontinued operations, net of tax, was $2,176,000 for the three months ended March 31, 2023, reflecting the normal strong first calendar quarter of the In-store Marketing Business.

Information on the sale of the In-Store Marketing Business and statement of operations details of the discontinued operations are included in Note 2 to the Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K.

Noncontrolling interest .

The 18.6% noncontrolling interest in Tulp 24.1’s loss for the acquisition period was $223,000.

For the reasons stated above, the net loss for the three months ended March 31, 2024 was $1,264,000, compared to net income of $1,648,000 for the three months ending March 31, 2023.

As discussed in the sales section, we anticipate seasonality in sales, with sales being lower in the last half of the year, resulting in an expected loss for the full year because of one-time acquisition cost and amortization expense.

Non-GAAP Financial Measures

This report includes EBITDA and Adjusted EBITDA, each of which is a “non-GAAP financial measure.” EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense.

Adjusted EBITDA is defined as EBITDA after additional pretax adjustments.

These non-GAAP financial measures, which are not calculated or presented in accordance with U.S.

generally accepted accounting principles (“GAAP”), have been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP.

Such non-GAAP financial measures are not substitutes for, or as an alternative to, and should be considered in conjunction with, respective GAAP financial measures.

The non-GAAP financial measures presented may differ from similarly named measures used by other companies.

Included below are reconciliations of EBITDA and Adjusted EBITDA to net loss from continuing operations, the most directly comparable GAAP measure.

We have included these non-GAAP performance measures as a comparable measure to eliminate the effects of non-recurring transactions that occurred during the three months ended March 31, 2024.

We believe Adjusted EBITDA provides meaningful supplemental information about our operating performance as this measure excludes amounts from net loss from continuing operations that we do not consider part of our core operating results when assessing our performance.

Items excluded from Adjusted EBITDA consist of acquisition-related costs and other costs such as the cost of inventory that was stepped up to fair value as a result of the purchase accounting related to our acquisition of a majority interest in Bloomia.

Adjusted EBITDA does not reflect our cash expenditures, the cash requirements for the replacement of depreciated and amortized assets, or changes in or cash requirements for our working capital needs.

We believe these non-GAAP financial measures will be useful to permit investors to compare results with prior periods that did not include the one-time events and the resulting accounting charges.

Management has used EBITDA and Adjusted EBITDA (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers;

(b) to measure operational profitability on a consistent basis;

and (d) to evaluate compliance with covenants and restricted activities under the terms of our Credit Agreement and outstanding notes, as further described in the Notes to Consolidated Financial Statements included in Item 1 of Part I of this report.

Reconciliation of Net Loss from Continuing Operations

to EBITDA and Adjusted EBITDA from continuing operations

Three months ended March 31,

Net loss from continuing operations

$ (1,336,000 )

Interest (income) expense, net

Provision for income taxes

Depreciation and amortization

Acquistion-related costs

Non-operating (income) loss (1)

Adjusted EBITDA

(1) For the three months ended March 31, 2024, Other was related to (i) $1,360,000 in cost of products for cost of inventory that was stepped up to fair value during purchase accounting related to the Bloomia acquisition and (ii) $1,000 of stock-based compensation expense.

SEGMENT RESULTS OF OPERATIONS

The summary that follows provides a discussion of the results of operations of our two reportable segments (Bloomia and Lending).

We evaluate performance based on net sales and segment income and use a variety of ratios to measure performance of our reporting segments.

Segment income represents operating income from continuing operations before income taxes exclusive of intangible amortization, certain acquisition related expenses and other unusual non-operating items.

Bloomia Business

The net sales, segment income, and total assets for Bloomia were as follows:

Three months ended March 31, 2024

Income (loss) from continuing operations before income taxes

$ 102,981,000

The first and second calendar quarters historically have been the strongest sales quarters for Bloomia with Valentine’s Day, the Easter season and the start of the Spring season.

Lending Business

Three months ended March 31, 2024

Income (loss) from continuing operations before income taxes

With the focus on the Bloomia acquisition during the three months ended March 31, 2024, there was no revenue, and marketing efforts and related expense were reduced.

Three months ended March 31, 2024

Income (loss) from continuing operations before income taxes

Corporate consists of corporate transaction expenses, certain corporate fees and expenses, interest expense, and certain executive management compensation.

Liquidity and Capital Resources

We have historically financed our operations with proceeds from stock sales and sales of our services and products, subject to occasional supplemental proceeds from the settlement of litigation.

The sale of the In-Store Marketing Business on August 3, 2023 generated approximately $1.6 million of cash, directly from the buyer.

At September 30, 2023, working capital (current assets less current liabilities) was $15,892,000, compared to $13,379,000 at December 31, 2022.

During the nine months ended September 30, 2023, cash and cash equivalents and restricted cash increased $515,000 from $14,524,000 at December 31, 2022 to $15,039,000 at September 30, 2023.

The Company has financed its operations with proceeds from stock sales and sales of its services and products, in addition to a significant payment resulting from the settlement of litigation.

To aid in funding the Bloomia acquisition, Tulp 24.1 entered a Credit Agreement that provided an $18,000,000 term loan and a revolver with borrowings of up to $6,000,000.

At March 31, 2024, the Company’s working capital (defined as current assets less current liabilities) was $11,148,000 compared to $15,483,000 at December 31, 2023.

During the three months ended March 31, 2024 cash and cash equivalents decreased $11,064,000 from $16,077,000 at December 31, 2023 to $5,013,000 at March 31, 2024.

Operating Activities .

Net cash used in continuing operating activities during the nine months ended September 30, 2023, was $2,325,000.

Net income of $2,738,000, less income from discontinued operations of $2,422,000, less the gain from the sale of discontinued operations of $2,970,000, plus non-cash adjustments of $46,000, plus changes in operating assets and liabilities of $283,000, resulted in the $2,325,000 of cash used in operating activities.

The non-cash adjustments consisted of depreciation expense and stock-based compensation expense.

The largest component of the change in operating assets and liabilities was accrued liabilities, which increased $630,000 from December 31, 2022.

The increase was primarily due to the $650,000 of severance related payments that remains to be paid to the Company’s prior CEO, Ms.

Net cash provided by operating activities during the three months ended March 31, 2024 was $1,470,000, of which $86,000 was provided by operating activities of discontinued operations.

Net loss of $1,264,000 plus non-cash adjustments of $456,000 reduced by adjustments for deferred income tax benefits of $505,000, was more than offset by changes in operating assets and liabilities of $2,697,000 which resulted in the $1,470,000 of cash provided by operating activities.

The non-cash adjustments consisted of depreciation expense, changes in allowance for doubtful accounts, stock-based compensation expense, and non-cash operating lease expense as well as adjustments for deferred tax benefits recorded in net income.

The largest component of the change in operating assets and liabilities was inventories which decreased $3,322,000 from the balance acquired from Bloomia, resulting in an equivalent amount added back to net income to calculate net cash provided by operating activities.

Investing Activities .

Net cash provided by investing activities from continuing operations during the nine months ended September 30, 2023 was $1,557,000, which was due to the proceeds from the sale of our In-Store Marketing Business.

Net cash used in investing activities during the three months ended March 31, 2024 was $34,372,000, which primarily related to the purchase price and other expenses resulting from the acquisition of Bloomia.

Net cash used in investing activities also includes cash paid for purchases of property and equipment.

Financing Activities .

Net cash used in financing activities during the nine months ended September 30, 2023 was $428,000, which related to cash used for the repurchase of common stock, partially offset by proceeds from the issuance of shares per the Director Deferred Compensation Plan for two former non-employee directors.

Cash and cash equivalents plus restricted cash at September 30, 2023 were $15.0 million.

The Company believes that based upon current business conditions and plans, its cash and cash equivalents balances will be sufficient for its cash requirements for at least the next 12 months.

On August 28, 2023, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock.

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

The plan does not obligate the Company to repurchase any particular number of shares and may be suspended anytime at the Company’s discretion.

In the three months ended September 30, 2023, the Company repurchased 75,345 shares at a total cost of $437,000.

As the Company grows its Lending Business, we may be required to finance this process through equity offerings or debt financings.

Net cash provided by financing activities during the three months ended March 31, 2024 was $21,835,000, which primarily related to proceeds received from issuance of the Credit Agreement used to fund the acquisition of a majority interest in Bloomia.

On February 22, 2024, the Company acquired majority ownership in Bloomia for a total purchase price of $53,360,000.

The acquisition was funded through a combination of debt and cash on hand.

The Company expects that the new credit facility will provide sufficient credit availability to support its ongoing operations, fund its new debt service requirements, capital expenditures and working capital for at least the next 12 months.

To finance the Bloomia acquisition, the Company entered into the Credit Agreement, together with Tulp 24.1 as the borrower.

Under the terms of the Credit Agreement, Tulp 24.1 had an $18.0 million term loan funded.

The Credit Agreement also contains a $6.0 million revolving credit facility, which may be used by Tulp 24.1 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 are scheduled to 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.

As of March 31, 2024, the Company was in compliance with these financial covenants, and expects to be in compliance for at least the next twelve months.

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 increases 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% per annum.

The notes payable for $2.7 million were paid in full after the end of the quarter, in April 2024.

As the Company grows its businesses, we may be required to obtain additional capital through equity offerings or additional debt financings.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of our stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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 Lending Business, or complete transactions related to the strategic alternatives process.

If we are unable to raise additional funds when needed we may not be able to grow our businesses, or complete transactions related to the strategy.

Critical Accounting Estimates

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During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to allowance for doubtful accounts, income taxes, sales tax, and stock-based compensation expense.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to business combinations, inventory, goodwill, long-lived and indefinite-lived assets, and income taxes.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

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Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements.

Our significant accounting policies are described in Note 1 to the annual financial statements included in Part II, Item 8 of our Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 9, 2023.

Our significant accounting policies are described in Note 2 to the financial statements included in Part I, Item 1 of this report.

We believe our most critical accounting estimates include the following:

allowance for doubtful accounts;

We coordinate with recurring customers to plan production based on anticipated demand and projections;

however, we may have to write down inventory or recognize a material impairment if our production significantly exceeds customer demand.

Business Combinations.

We account for business combinations under the acquisition method of accounting.

This method requires the recording of acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition date fair values.

The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, royalty rates and asset lives, among other items.

We used the income approach to value certain intangible assets.

Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset.

The fair value of customer relationships was estimated using a discounted present value income approach.

We used the income approach known as the relief from royalty method to value the fair value of the trade name.

The relief from royalty method is based on the hypothetical royalty stream that would be received if we were to license the trade name and was based on expected revenues.

The determination of the fair value of other assets acquired and liabilities assumed involves assessing factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount rates at the date of the acquisition.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocation.

During this measurement period, we will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date.

All changes that do not qualify as measurement period adjustments are included in current period earnings.

If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets.

Impairment of goodwill and indefinite-lived intangibles .

Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.

We test goodwill and identifiable intangible assets with indefinite lives for impairment at least annually in the fourth quarter.

Impairment testing for goodwill is done at a reporting unit level and all goodwill is assigned to a reporting unit.

Our reporting units are the same as our reporting segments.

We test goodwill for impairment by either performing a qualitative evaluation or a quantitative test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit's carrying amount over its fair value.

The qualitative evaluation is an assessment of factors, including reporting unit specific operating results and cost factors, as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

We may elect to bypass this qualitative assessment and perform the quantitative test in accordance with ASC 350, Intangibles - Goodwill and Other .

Fair values under the quantitative test are estimated using a combination of discounted projected future earnings or cash flow methods and multiples of earnings in estimating fair value.

The estimate of the reporting unit’s fair value is determined by weighting a discounted cash flow model and a market-related model using current industry information that involve significant unobservable inputs (Level 3 inputs).

In determining the estimated future cash flow, we consider and apply certain estimates and judgments, including current and projected future levels of income based on management’s plans, business trends, prospects and market and economic conditions and market-participant considerations.

These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.

If we fail the quantitative assessment of goodwill impairment ("quantitative assessment"), we would be required to recognize an impairment loss equal to the amount that a reporting unit's carrying value exceeded its fair value.

We have an indefinite-lived intangible asset for trade name of $8,570,000 from the Bloomia acquisition.

Annually in the fourth quarter, or if conditions indicate an additional review is necessary, we assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount.

We have the option to first assess qualitative factors to determine whether the fair value of a trade name is “more likely than not” less than its carrying value.

If it is more likely than not that an impairment has occurred, we then perform the quantitative impairment test.

If we perform the quantitative test, the carrying value of the asset is compared to an estimate of its fair value to identify impairment.

The fair value is determined by the relief-from-royalty method, which requires significant judgment.

Actual results may differ from assumed and estimated amounts utilized in the analysis.

If we conclude an impairment exists, the asset's carrying value will be written down to its fair value.

Long-Lived Assets .

Long-lived assets, which include property and equipment, and definite-lived intangible assets, primarily customer relationships and trade name, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

The impairment testing involves comparing the carrying amount of the asset to the forecasted undiscounted future cash flows generated by that asset.

These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.

In the event the carrying amount of the asset exceeds the undiscounted future cash flows generated by that asset and the carrying amount is not considered recoverable, an impairment exists.

An impairment loss is measured as the excess of the asset’s carrying amount over its fair value and is recognized in the statement of income in the period that the impairment occurs.

The reasonableness of the useful lives of this asset and other long-lived assets is regularly evaluated.

Income taxes .

stock-based compensation expense.

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.

Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year.

In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income, and available tax planning strategies.

If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required.

Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions.

If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed, and we will recognize a tax benefit during the period in which it is determined the liability no longer applies.

Conversely, the Company records additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty.

Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings.

Therefore, the actual liability for U.S.

or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made in this Quarterly Report on Form 10-Q, in the Company’s other SEC filings, in press releases and in oral statements to stockholders and securities analysts that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements.

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “likely,” “may,” “plan,” “project,” “will” and similar expressions identify forward-looking statements.

Certain statements made in this report that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements.

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “likely,” “may,” “plan,” “project,” “will” and similar expressions identify forward-looking statements.

Forward-looking statements include statements expressing the intent, belief or current expectations of the Company and members of our management team regarding, for instance:

(i) our belief that our cash balance and cash generated by operations will provide adequate liquidity and capital resources for at least the next twelve months;

and (ii) our belief that we will reduce certain expenses going forward.

(i) our belief that our cash balance, cash generated by operations and borrowings available under our Credit Agreement, will provide adequate liquidity and capital resources for at least the next twelve months, and (ii) regarding the potential for growth and other opportunities for our businesses.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

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Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following:

Forward-looking statements involve known and unknown risks, uncertainties and other factors, including:

(1) the availability of strategic alternatives on acceptable terms, if at all, (2) the limited history of our Lending Business, (3) the substantial risk of loss associated with lending generally, (4) market conditions that may restrict or delay appropriate or desirable Lending Business opportunities, (5) our ability to develop and maintain necessary processes and controls relating to our Lending Business (6) reliance on one or a small number of employees, (7) potential adverse classifications of our Company if we are unsuccessful in executing our business plan, (8) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally;

and (9) our ability to attract and retain highly qualified managerial, operational and sales personnel.

Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2022 and this Quarterly Report on Form 10-Q, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

(1) our ability to integrate and continue to successfully operate the newly acquired Bloomia business, (2) our ability to compete, (3) concentration of Bloomia’s historical revenue among a small number of customers, (4) changes in interest rates, (5) ability to comply with the requirements of the Credit Agreement, (6) the limited history of our Lending Business, (7) the substantial risk of loss associated with lending generally, (8) market conditions that may restrict or delay appropriate or desirable opportunities, (9) our ability to develop and maintain necessary processes and controls relating to our businesses (10) reliance on one or a small number of employees in each of our businesses, (11) potential adverse classifications of our Company if we are unsuccessful in executing our business plans, (12) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s businesses generally;

(13) our ability to attract and retain highly qualified managerial, operational and sales personnel;

and (14) the availability of additional capital on desirable terms, if at all.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those set forth in this report and additional risks, if any, identified in this Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K filed with the SEC.

Such forward-looking statements should be read in conjunction with the Company’s filings with the SEC.

Lendway assumes no responsibility to update the forward-looking statements contained in this report or the reasons why actual results would differ from those anticipated in any such forward-looking statement, other than as required by law.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

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-Q

Item 2. Management’s Discussion and Analysis