BLOOMIA HOLDINGS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Company’s 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 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 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. 22 Table of Contents 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. 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 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, certain items in our Consolidated Statements of Operations as a percentage of total net sales. For the Three Months Ended March 31 2024 Revenue, net 100.0 % Cost of goods sold 76.4 Gross profit 23.6 Sales, general and administrative 42.2 Operating (loss) income (18.6 ) Other income and foreign exchange difference (2.4 ) Loss from continuing operations, before tax (21.0 ) Income tax benefit (expense) 4.3 Income from discontinued operations, net of tax 0.9 Net (loss) income (15.8 )% 23 Table of Contents 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, 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 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. 24 Table of Contents Net Loss from Continuing Operations. 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. Net Loss. 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; (c) in presentations to the members of our Board of Directors; 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. 25 Table of Contents Reconciliation of Net Loss from Continuing Operations to EBITDA and Adjusted EBITDA from continuing operations Three months ended March 31, 2024 2023 Net loss from continuing operations $ (1,336,000 ) $ (528,000 ) Interest (income) expense, net 225,000 (103,000 ) Provision for income taxes (347,000 ) 3,000 Depreciation and amortization 300,000 14,000 EBITDA (1,158,000 ) (614,000 ) Acquistion-related costs 1,542,000 - Non-operating (income) loss (1) 1,361,000 - Adjusted EBITDA $ 1,745,000 $ (614,000 ) (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 Bloomia Revenue, net $ 8,033,000 Income (loss) from continuing operations before income taxes 1,091,000 Total assets $ 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 Lending Revenue, net $ - Income (loss) from continuing operations before income taxes (325,000 ) Total assets $ 2,049,000 26 Table of Contents 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. Corporate Three months ended March 31, 2024 Corporate Revenue, net $ - Income (loss) from continuing operations before income taxes (2,449,000 ) Total assets $ 1,794,000 Corporate consists of corporate transaction expenses, certain corporate fees and expenses, interest expense, and certain executive management compensation. Liquidity and Capital Resources 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 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 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 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. 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. 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. 27 Table of Contents 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 additional covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the U.S. and worldwide. If we are unable to raise additional funds when needed we may not be able to grow our businesses, or complete transactions related to the strategy. Critical Accounting Estimates Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to 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. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements. 28 Table of Contents 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: Inventory . 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. 29 Table of Contents 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 . 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. 30 Table of Contents Cautionary Statement Regarding 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, 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. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes. Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following: (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. Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, we are not required to provide disclosure pursuant to this item.