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Item 2. Management’s Discussion and Analysis

2024-11-19 compared with 2024-08-19 · 74 added, 60 removed, 201 unchanged (40% of the section changed)

24 unchanged sentences

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 Company acquired Bloomia for total consideration of $53,360,000.

Consideration was 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.

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Promptly after receiving a notice of resignation from the Company’s then-serving Chief Executive Officer in June 2024, our Board of Directors reexamined the Company’s strategic position and prospects.

Primarily because the now departed Chief Executive Officer represented nearly all of the Company’s knowledge and expertise relating to the purchase of existing loans and/or origination and funding of new loans, the Company has determined to focus solely on the ag business.

Primarily because the now departed Chief Executive Officer represented nearly all the Company’s knowledge and expertise relating to the purchase of existing loans and/or origination and funding of new loans, the Company has determined to focus solely on the ag business.

Because the non-bank lending business remained in development, this change is not expected to have a significant adverse impact on the Company’s operations or financial results.

Results of Operations

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

The following table sets forth, for the periods indicated, certain items in our condensed consolidated statements of operations as a percentage of total net sales.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of goods sold

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Sales, general and administrative expenses

Operating income (loss)

Operating loss

Operating loss as a percent of sales

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Loss from continuing operations before income taxes

Income tax (benefit) expense

Income tax benefit

Net loss from continuing operations

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$ (1,125,000 )

Three and Six Months Ended June 30, 2024 Compared to Three and Six Months Ended June 30, 2023

$ (2,803,000 )

Three and Nine Months Ended September 30, 2024 Compared to Three and Nine Months Ended September 30, 2023

Revenue, Net.

Revenue, net for the three and six months ended June 30, 2024 was $16,780,000 and $24,813,000, respectively, all of which were from Bloomia for the period from its acquisition on February 22, 2024 (“the acquisition date”) through June 30, 2024 (the “acquisition period”).

Revenue, net for the three and nine months ended September 30, 2024 was $6,628,000 and $31,581,000, respectively, all of which were generated from Bloomia for the period from its acquisition on February 22, 2024 (“the acquisition date”) through September 30, 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 three months ended June 30, 2024 was $3,977,000 or 23.7.0% as a percentage of revenue.

Gross profit for the three months ended September 30, 2024 was $1,440,000 or 22% 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 $162,000 of costs related to this amortization in the three months ended June 30, 2024.

Gross profit for the six months ended June 30, 2024, was $5,871,000.

Gross profit as a percentage of total net revenue was 23.7% for the six months ended June 30, 2024, compared.

The amortization of the inventory written up to fair value was $1,522,000 for the six months ended June 30, 2024.

Gross profit for the nine months ended September 30, 2024, was $7,091,000.

Gross profit as a percentage of total net revenue was 22% for the nine months ended September 30, 2024.

The amortization of the inventory written up to fair value was $1,522,000 for the nine months ended September 30, 2024.

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

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Sales, general and administrative.

Sales, general and administrative expenses for the three months ended June 30, 2024 was $4,095,000 compared to $557,000 for the three months ended June 30, 2023.

The increase was primarily due the acquisition of Bloomia, including $652,000 of integration costs in the period.

Sales, general and administrative expenses for the six months ended June 30, 2024, was $7,483,000 compared to $1,185,000 for the six months ended June 30, 2023.

The increases for both periods was primarily due to the acquisition of Bloomia, including one-time acquisition related costs.

Sales, general and administrative expenses for the three months ended September 30, 2024 were $2,791,000 compared to $1,633,000 for the three months ended September 30, 2023.

The increase was primarily due to the acquisition of Bloomia.

Sales, general and administrative expenses for the nine months ended September 30, 2024, were $9,920,000 compared to $2,983,000 for the nine months ended September 30, 2023.

The increases were primarily due to the acquisition of Bloomia, including one-time acquisition-related costs.

Interest Expense and Income.

Interest expense for the three months ended June 30, 2024, was $984,000 compared to interest income of $135,000 for the three months ended June 30, 2023.

Interest expense for the three months ended September 30, 2024, was $800,000 compared to interest income of $111,000 for the three months ended September 30, 2023.

In connection with the Bloomia acquisition, the Company began incurring interest expenses starting February 21, 2024.

The Company did not have debt in the prior year.

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

Interest expense for the six months ended June 30, 2024, was $1,209,000 compared to interest income of $238,000 for the three months ended June 30, 2023.

The increase is due to the interest on the debt associated with the acquisition of Bloomia.

The Company has not hedged the risk of its interest expense.

If the Term SOFR reference rate increases, the Company’s interest expense on its term loan and revolving credit facility will increase.

Interest expense for the nine months ended September 30, 2024, was $1,989,000 compared to interest income of $325,000 for the nine months ended September 30, 2023.

The increase is due to the interest on the debt associated with the acquisition of Bloomia and less short-term investments in the current year.

Income Taxes.

For the three and six months ended June 30, 2024, the Company recorded an income tax benefit of 24.5% and 29.4%, respectively, on loss from continuing operations.

For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of 33.5% and 26.6%, respectively, on loss from continuing operations.

The rate differs from the federal statutory rate of 21.0% due to state taxes of 4.7%, valuation allowance change of 9.3% and nondeductible transaction costs and other permanent items of (8.4)%.

For the three and six months ended June 30, 2023, the Company recorded an income tax expense of 12.5% and 040%, respectively, on loss from continuing operations before income taxes.

The rate differs from the federal statutory rate of 21% due to state taxes of 3.8%, valuation allowance change of (24.2)% and other permanent items of (0.2)%.

For the three and six months ended June 30, 2024, the Company recorded an income tax benefit of 201,000 and $548,000, respectively, on the loss from continuing operations before income taxes and equity in net income of equity investment.

For the three and nine months ended September 30, 2023, the Company recorded an income tax expense of 0.6% and 0.1%, respectively, on loss from continuing operations before income taxes.

The rate differs from the federal statutory rate of 21.0% due to state taxes of 3.5%, valuation allowance change of (24.5)%.

and other permanent items of 0.1%.

For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of $736,000 and $1,284,000, respectively, on the loss from continuing operations before income taxes and equity in net income of equity investment.

The overall benefit of $1,284,000 includes a $451,000 benefit for the reversal of the valuation allowance on federal deferred tax assets.

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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 June 30, 2024, and December 31, 2023, the Company had unrecognized tax benefits totaling $43,000, including interest, which relates to state nexus issues.

As of September 30, 2024, and December 31, 2023, the Company had unrecognized tax benefits totaling $35,000 and $43,000, respectively, including interest, which relates to state nexus issues.

The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $35,000.

Income from Discontinued Operations, Net of Tax.

For the three and six months ended June 30, 2024, income from discontinued operations is a result of the reduction in the accrual for sales tax due the expiration of the statute of limitations.

Income from discontinued operations, net of tax, three and six months ended June 30, 2023, reflects the legacy In-store Marketing Business results of operations.

Information on the sale of the In-Store Marketing Business and statement of operations details of the discontinued operations are included in Note 4 to the Consolidated Financial Statements.

For the three and nine months ended September 30, 2024, income from discontinued operations is a result of the reduction in the accrual for sales tax due to the expiration of the statute of limitations.

Income from discontinued operations, net of tax, for the three and nine months ended September 30, 2023 reflects results from operations from the legacy In-store Marketing Business and the $2,970,000 gain from the sale of that business.

Information on the sale of the In-Store Marketing Business and statement of operations details of the discontinued operations are included in Note 4 to the condensed consolidated financial statements.

Noncontrolling interest .

The 18.6% noncontrolling interest in Tulp 24.1’s loss for the acquisition period was $70,000 and $293,000 for the three and six months ended June 30, 2024, respectively.

The 18.6% noncontrolling interest in Tulp 24.1’s loss for the acquisition period was $267,000 and $536,000 for the three and nine months ended September 30, 2024, respectively.

Non-GAAP Financial Measures

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

Included below is a reconciliations of EBITDA to net loss from continuing operations, the most directly comparable GAAP measure.

Reconciliation of Net Loss from Continuing Operations

to EBITDA from Continuing Operations

We believe this non-GAAP financial measure will be useful to permit investors to evaluate the business consistent with how management evaluates the business.

Our EBITDA excludes amounts from net loss from discontinued operations that we do not consider part of our core operating results when assessing our performance.

Management has used 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.

Included below is a reconciliation of EBITDA to net loss from continuing operations, the most directly comparable GAAP measure.

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Net loss from continuing operations

$ (1,458,000 )

Interest (income) expense, net

Provision for income taxes

$ (1,511,000 )

$ (3,541,000 )

$ (2,654,000 )

Interest expense (income), net

Income tax benefit

Depreciation and amortization

$ (1,623,000 )

$ (2,947,000 )

Liquidity and Capital Resources

1 unchanged sentence

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 June 30, 2024, the Company’s working capital (defined as current assets less current liabilities) was $5,817,000 compared to $15,525,000 at December 31, 2023.

During the six months ended June 30, 2024, cash and cash equivalents decreased $14,358,000 from $16,077,000 at December 31, 2023 to $1,719,000 at June 30, 2024.

Operating Activities .

Net cash provided by operating activities during the six months ended June 30, 2024 was $4,573,000, of which $292,000 was provided by accounts receivable related to discontinued operations collected in the year.

At September 30, 2024, the Company’s working capital (defined as current assets less current liabilities) was $11,520,000 compared to $15,525,000 at December 31, 2023.

During the nine months ended September 30, 2024, cash and cash equivalents decreased $14,744,000 from $16,077,000 at December 31, 2023 to $1,333,000 at September 30, 2024.

Operating Activities of Continuing Operations .

Net cash used in operating activities during the nine months ended September 30, 2024 was $2,663,000.

Cash from operations is greatest in the first half of the year due to the seasonality of the Bloomia business.

The Company used $1,700,000 in cash in the period to purchase tulips bulbs.

Investing Activities .

Net cash used in investing activities during the six months ended June 30, 2024 was $34,243,000, 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.

The Company used approximately $11,000,000 in cash in the period to purchase tulips bulbs.

Investing Activities of Continuing Operations .

Net cash used in investing activities during the nine months ended September 30, 2024 was $34,682,000, 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 received from a note receivable, partially offset by cash paid for purchases of property and equipment.

Financing Activities .

Net cash provided by financing activities during the six months ended June 30, 2024 was $15,268,000, which primarily related to proceeds received from issuance of the Credit Agreement used to fund the acquisition of a majority interest in Bloomia.

Net cash provided by financing activities during the nine months ended September 30, 2024 was $22,473,000, 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.

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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.

The Company expects that the 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.

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%.

On October 16, 2024, the Company amended the credit agreement (Amended Credit Agreement) to, among other things, temporarily increase the borrowing capacity under the revolving credit facility to $8,000,000.

Borrowings under the Amended 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.

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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.

The Credit Agreement requires 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 June 30, 2024, the Company was in compliance with these financial covenants, and expects to be in compliance for at least the next twelve months.

The September 2024 installment was paid in October 2024 and is included in the current portion of long-term debt on the condensed consolidated balance sheet.

The obligations under the Amended 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 Amended Credit Agreement.

The Amended Credit Agreement requires 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 3.75 to 1.0 until March 31, 2025, and stepping down to 2.00 to 1.00 on December 31, 2027, until the maturity date of the Amended Credit Agreement.

The Amended 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 Amended Credit Agreement contains customary events of default, the occurrence of which would permit the lenders to terminate their commitments and accelerate loans under the Amended Credit Agreement, including failure to make payments under the credit facility, failure to comply with covenants in the Amended 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 September 30, 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.

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Notes payable for $2,700,000 million were paid in full as of June 30, 2024.

After the end of the quarter, on August 15, 2024, we entered into an unsecured Delayed Draw Term Note (the “ Note ”) with Air T Inc.

On August 15, 2024, we entered into an unsecured Delayed Draw Term Note (the “ Note ”) with Air T Inc.

(“Air T”) pursuant to which Air T has agreed to advance from time to time until August 15, 2026, but not on a revolving basis, up to $2.5 million to fund the Company’s operations.

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The borrower may prepay any Loan outstanding hereunder, together with accrued and unpaid interest on such Loan, at any time without prepayment or penalty.

The Company borrowed $2,000,000 under the note in September 2024.

Air T beneficially owns greater than 10% of our outstanding Common Stock and is a member of a group of stockholders that collectively owns approximately 40% of our outstanding common stock.

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The entry into the Note was approved in advance by the Audit Committee of our Board of Directors in accordance with our Related Person Transaction Approval Policy and by a vote of solely independent directors who have no relationship with Air T.

The Company expects that cash from operations combined with funds available under the Credit Facility and the Note 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.

The Company expects that cash from operations combined with funds available under the Amended Credit Facility and the Note 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.

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

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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).

The estimate of the reporting unit’s fair value is determined by weighing 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.

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The significant assumptions used in the weighted average estimate are the future debt balance and the length of time the debt will be outstanding.

I ncome taxes .

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.

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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