INSIGNIA SYSTEMS(ISIG) - 2023 Q4 - Annual Report

PART I. Business Overview Lendway transformed into a specialty agricultural and finance company through strategic divestitures, reincorporation, and the acquisition of Bloomia B.V. - Company name changed from "Insignia Systems, Inc." to "Lendway, Inc." and reincorporated from Minnesota to Delaware, with common stock now trading under 'LDWY' on Nasdaq[11] - Completed the sale of the In-Store Marketing Business on August 3, 2023, for $3.5 million, with operations presented as discontinued[14][15] - Acquired Bloomia B.V. on February 22, 2024, for $47.5 million, making Lendway the majority owner (81.4%) of a leading U.S. fresh-cut tulip producer[16][18][19] - Launched a non-bank lending business, FarmlandCredit.com, focused on agricultural real estate loans, with plans to expand product offerings[13][21] General Lendway, Inc. has strategically reincorporated, changed its name, divested its legacy business, and acquired a significant agricultural asset. - Lendway, Inc. (formerly Insignia Systems, Inc.) reincorporated from Minnesota to Delaware and changed its Nasdaq ticker to 'LDWY' on August 4, 2023[11] - The company has transitioned to a specialty agricultural and finance company, focusing on ag investments and non-bank lending[12][13] - Sold the legacy In-Store Marketing Business on August 3, 2023, for $3.5 million, with these operations now reported as discontinued[14][15] - Acquired Bloomia B.V. on February 22, 2024, for $47.5 million, making it a significant producer of fresh-cut tulips in the U.S. and a primary near-term focus[16][18][19] Segments The company operates in two segments: Specialty Ag (Bloomia) and Non-bank Lending, with Bloomia being a major fresh-cut tulip producer. - The Company operates in two industry segments: Specialty Ag (Bloomia business) and Non-bank Lending (Lending Business)[24][28] - Bloomia, a leader in fresh-cut tulips, nurtured over 75 million stems annually in 2023 and 2022, operating from the U.S., Netherlands, and South Africa, with a minority interest in Chile[24][25][27][29] - Bloomia's U.S. sales are highly concentrated, with three customers accounting for 37.7%, 16.2%, and 10.4% of its U.S. revenue in 2023[30] - The non-bank lending business, launched in April 2023, aims to build a portfolio of well-secured loans, initially focusing on agricultural real estate, with a portion of credit risk participated to third parties[45][46] - Capital for the lending business will be significantly constrained in the near term due to the Bloomia acquisition, anticipating minimal revenue and operating losses in 2024[50] Intellectual Property: Patents and Trademarks Bloomia protects its brand and trade secrets through trademarks and confidentiality agreements. - Bloomia holds a trademark on its name and logo, and the company uses nondisclosure and invention assignment agreements to protect trade secrets[51] Environmental Matters The company's operations comply with environmental regulations, with Bloomia's hydroponic model offering a lower carbon footprint. - The company believes its operations comply with environmental regulations, and compliance costs are not expected to be material[52] - Bloomia's business model of shipping bulbs via sea containers for local hydroponic production has a lower carbon footprint compared to air-shipping cut flowers, and uses less water and no pesticides[53] Governmental Regulation Bloomia holds a USDA import permit and participates in a pre-clearance program, while Farmland Credit FR, LLC holds a money broker's license. - Bloomia holds a USDA import permit for tulip bulbs and participates in a pre-clearance program for expedited U.S. customs processing[54] - Farmland Credit FR, LLC holds a money broker's license in North Dakota[54] Employee and Human Capital Resources As of March 1, 2024, the company had 156 employees and 54 seasonal workers, focusing on recruitment, retention, training, and a safe workplace. - As of March 1, 2024, the Company and its subsidiaries had 156 employees (5 part-time), with 54 seasonal workers, none represented by labor unions[55] - Human capital objectives include identifying, recruiting, retaining, incenting, and integrating employees, with a focus on training, wellness programs, and continuous workplace improvement[56][57] - The company prioritizes a safe, healthy, and sustainable working environment, implementing changes based on workforce feedback and OSHA guidelines[58] Risk Factors The company faces substantial risks from intense competition, customer concentration, economic volatility, acquisition integration challenges, operational constraints, and cybersecurity threats. - Bloomia faces strong competition from both local and foreign cut tulip producers, with competition based on price, quality, and fulfillment capabilities[60] - Three customers accounted for approximately 64.3% of Bloomia's revenue in 2023, posing a significant concentration risk due to the absence of long-term purchase commitments[61] - The company's financial results are highly dependent on Bloomia's success, with a substantial portion of capital committed to its acquisition and growth, leading to a lack of diversification[65] - The Credit Agreement for the Bloomia acquisition imposes covenants that restrict Tulp 24.1's ability to incur additional debt, dispose of assets, or make distributions to Lendway, potentially limiting capital for the Lending Business and future acquisitions[69][70][72] - Bloomia's international operations expose the company to risks such as foreign currency fluctuations, adverse tax consequences, and compliance with complex foreign laws[79][80] - The agricultural nature of Bloomia's business carries inherent risks like insects, plant diseases, and quality issues, as evidenced by a $900,000 tulip bulb inventory write-off in June 2023 due to quality standards not being met[84][85] RISKS RELATING TO OUR BUSINESS AND OPERATIONS The company faces significant business and operational risks including intense competition, high customer concentration, and challenges in enforcing non-compete agreements. - Bloomia faces direct and indirect competition from other cut tulip growers and the broader cut floral industry, impacting revenue and operations[60] - Three customers accounted for approximately 64.3% of Bloomia's 2023 revenue, and the absence of long-term purchase commitments creates a risk of significant revenue decrease if these customers reduce or cease purchases[61] - The company may struggle to enforce non-compete agreements with former Bloomia owners, potentially allowing competitors to benefit from their expertise[62] RISKS RELATING TO ECONOMY AND MARKET CONDITIONS Economic and market conditions, including floating interest rates and reduced consumer spending, pose risks to the company's financial performance. - The majority of the company's debt carries floating interest rates (Term SOFR + 3.0%), making it vulnerable to interest rate fluctuations that could increase interest expense and reduce financing ability[63] - Adverse economic conditions (e.g., recession, inflation, reduced consumer spending) in the U.S. and international markets could negatively impact net sales and earnings, as fresh-cut tulips are a discretionary purchase[64] STRATEGIC RISKS The company's strategic risks include high dependence on Bloomia's success, acquisition integration challenges, and potential difficulties in raising additional capital. - The company's cash flow and debt servicing ability are highly dependent on Bloomia's performance due to substantial capital commitment to its acquisition and growth, leading to a lack of diversification[65] - Failure to successfully manage the Bloomia acquisition and future acquisitions could adversely affect the business due to integration challenges, potential fraud, decreased customer loyalty, and inability to generate adequate cash flow for debt service[66][78] - The company may need to raise additional capital through equity or debt, which could dilute existing stockholders, impose restrictive covenants, or be unavailable on reasonable terms, hindering growth plans[68] OPERATIONAL RISKS Operational risks include credit agreement restrictions, reliance on key personnel, internal control weaknesses, international complexities, and inherent agricultural business risks. - The Credit Agreement for the Bloomia acquisition contains covenants that restrict Tulp 24.1's ability to incur additional debt, dispose of assets, make distributions to Lendway, or make certain investments, potentially limiting capital for the Lending Business and future acquisitions[69][70][72] - The company's success is highly dependent on key personnel, specifically CEO Randy Uglem for the Lending Business and Bloomia's CEO Werner Jansen for the tulip business; their loss could adversely affect business strategy and financial performance[73] - Failure to establish and maintain effective internal control over financial reporting, especially with the Bloomia acquisition, could lead to inaccurate financial reporting, decline in stock price, and regulatory sanctions[74][75][76][77] - Bloomia's international operations in South Africa, Chile, and the Netherlands expose the company to risks such as foreign currency fluctuations, adverse tax consequences, and compliance with complex foreign laws[79][80] - The agricultural business is subject to inherent risks like insects, plant diseases, and quality issues, as demonstrated by a $900,000 tulip bulb inventory write-off in June 2023 due to quality standards not being met[84][85] - Significant increases in energy and water costs, critical for Bloomia's hydroponic greenhouse cultivation, could adversely impact profit margins if not passed on to customers or mitigated[89] - Disruptions to the transportation network (e.g., ocean ports, truck availability) could impair the timely receipt of tulip bulbs and distribution of stems, negatively affecting operations and results[90] TECHNOLOGY AND CYBERSECURITY RISKS Reliance on management information systems means system failures or cyber-attacks could disrupt business, decrease sales, and increase costs. - Reliance on management information systems for inventory, distribution, and other functions means system failures or interruptions (e.g., cyber-attacks, natural disasters) could disrupt business, decrease sales, and increase costs[91] RISKS RELATED TO AN INVESTMENT IN OUR COMPANY Investment risks include significant fluctuations in operating results and stock price, potential stockholder dilution from capital raises, and control exerted by significant stockholders. - Quarterly and annual operating results are subject to significant fluctuations due to factors like Bloomia's performance, loan closing rates, interest rate changes, and strategic activities, which could adversely affect stock price[92][97] - The company's stock price has fluctuated significantly (low of $4.05 to high of $9.67 in 2023) due to operating results, market acceptance, and general market volatility[93] - Raising additional capital for growth may result in stockholder dilution or unfavorable terms, and such funds may not be available when needed, potentially forcing curtailment of growth plans[94] - Significant stockholders, holding approximately 38.9% of outstanding shares, may exert control over matters requiring stockholder approval, potentially delaying or preventing changes of control or management[96][98] - The company could be deemed a 'shell company' after the August 2023 asset sale, which could restrict stockholders' reliance on certain rules (e.g., Rule 144) for reselling securities[99][100] Unresolved Staff Comments As a smaller reporting company, Lendway is exempt from disclosing unresolved staff comments. - Smaller reporting companies are not required to provide disclosure pursuant to this Item[102] Cybersecurity Lendway manages cybersecurity through outsourced IT, a comprehensive framework, and Board oversight, with Bloomia's integration underway and no material threats identified. - Lendway's cyber environment is primarily outsourced, utilizing a cybersecurity framework with multiple products, annual vulnerability scans, and employee awareness training[103] - The Board of Directors and Audit Committee provide oversight of the cybersecurity risk management program, receiving updates on IT general controls and cybersecurity[104] - Bloomia's IT environment, managed by a third-party vendor, will be included in the company's cybersecurity processes and oversight post-acquisition[105] - As of the report date, no cybersecurity threats were identified that materially affected or are reasonably likely to materially affect the business, though risks cannot be entirely eliminated[106] Properties The company leases its corporate headquarters, a 360,000 sq ft greenhouse in Virginia, a 107,000 sq ft facility in the Netherlands, and operates a 21,000 sq ft greenhouse in South Africa. - The Company leases 1,700 square feet for its corporate headquarters in Minneapolis, Minnesota, through September 30, 2025[109] - Fresh Tulips USA, LLC leases a 360,000 square foot greenhouse facility in King George, Virginia, through 2028[109] - Bloomia leases a 107,000 square foot office and warehouse space in the Netherlands through 2027 and operates a 21,000 square foot greenhouse in South Africa through 2028[109] Legal Proceedings Routine legal proceedings are not expected to materially impact the company's financial position or operational results. - The Company is party to legal actions, proceedings, and claims in the ordinary course of business[112] - The outcome of these matters is not expected to have a material effect on the Company's financial position or results of operations[112] Mine Safety Disclosures This item is not applicable to the company's operations. - Not applicable[113] PART II. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Lendway's common stock trades on Nasdaq under 'LDWY', with 115 record holders, no regular dividends, and a recent stock repurchase program. - The Company's common stock is listed on the Nasdaq Capital Market under the symbol LDWY[115] - As of March 27, 2024, there were approximately 115 holders of record for the common stock[116] - The Company has not historically paid dividends, other than two one-time special dividends in 2011 and 2016[117] - On August 28, 2023, the Board approved a stock repurchase authorization for up to 400,000 shares[118] Issuer Purchases of Equity Securities | Period | Total shares purchased | Average price paid per share ($) | Approximate dollar value of shares purchased ($) | | :--- | :--- | :--- | :--- | | October 1 - 31, 2023 | 5,546 | $5.09 | $27,864 | | November 1 - 30, 2023 | 3,137 | $4.99 | $16,267 | | December 1 - 31, 2023 | - | - | - | | Total | 8,683 | | $44,131 | Reserved This item is reserved and contains no information. Management's Discussion and Analysis of Financial Condition and Results of Operations Lendway transformed into specialty agriculture and finance, reporting a $3.021 million net loss from continuing operations in 2023 and leveraging its balance sheet for the Bloomia acquisition. - Lendway has evolved into a specialty agricultural and finance company, marked by the launch of its lending business in April 2023, the sale of its In-Store Marketing Business in August 2023, and the acquisition of Bloomia B.V. in February 2024[121][122][123][124] - The Bloomia acquisition for $47.5 million was financed with $9.2 million cash, $22.8 million from a new credit facility, and $15.5 million in promissory notes, significantly leveraging the company's balance sheet[126] - The non-bank lending business will be significantly capital-constrained in the near term due to the Bloomia acquisition, anticipating minimal revenue and operating losses for the remainder of 2024[129] Consolidated Statements of Operations (Continuing Operations) | Item | Year Ended Dec 31, 2023 ($) | Year Ended Dec 31, 2022 ($) | Increase (decrease) from 2022 to 2023 (Amount) ($) | Increase (decrease) from 2022 to 2023 (Percent) (%) | | :--------------------------------------- | :---------------------- | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | | Sales and marketing | $196,000 | $- | $196,000 | 100.0% | | General and administrative | $3,323,000 | $2,442,000 | $881,000 | 36.1% | | Total operating expenses | $3,519,000 | $2,442,000 | $1,077,000 | 44.1% | | Operating loss | $(3,519,000) | $(2,442,000) | $(1,077,000) | 44.1% | | Interest income | $518,000 | $154,000 | $364,000 | 236.4% | | Loss from continuing operations before income taxes | $(3,001,000) | $(2,288,000) | $(713,000) | 31.2% | | Income tax expense | $20,000 | $6,000 | $14,000 | 233.3% | | Net loss from continuing operations | $(3,021,000) | $(2,294,000) | $(727,000) | 31.7% | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | $(9,866,000) | -80.0% | | Gain from sale of discontinued operations, net of tax | $2,961,000 | $- | $2,961,000 | 100.0% | | Net income | $2,414,000 | $10,046,000 | $(7,632,000) | -76.0% | - Working capital increased to $15,525,000 at December 31, 2023, from $13,379,000 at December 31, 2022. Cash, cash equivalents, and restricted cash increased by $1,553,000 to $16,077,000[140] - The new credit facility includes an $18.0 million term loan and a $6.0 million revolving credit facility, bearing interest at Term SOFR + 3.0%, with quarterly term loan repayments of $450,000 starting June 30, 2024[146][147][148] Overview Lendway has transformed into a specialty agricultural and finance company, reincorporating and divesting its legacy business. - Lendway has transitioned into a specialty agricultural and finance company, launching a non-bank lending business in April 2023 and selling its In-Store Marketing Business in August 2023[121][122][123] - The company changed its name from Insignia Systems, Inc. to Lendway, Inc. and reincorporated to Delaware on August 4, 2023, with its common stock now trading under 'LDWY'[123] Bloomia Business Lendway acquired majority ownership in Bloomia B.V., a leading fresh-cut tulip producer, for $47.5 million, significantly leveraging the balance sheet. - On February 22, 2024, Lendway acquired majority ownership in Bloomia B.V., a leading U.S. producer of fresh-cut tulips, nurturing over 75 million stems annually[124] - Bloomia's unaudited net sales were approximately $45 million in 2023 and $43 million in 2022[124][125] - The $47.5 million acquisition was financed with $9.2 million cash, $22.8 million from a new credit facility, and $15.5 million in promissory notes, significantly leveraging the company's balance sheet[126] Non-Bank Lending Business The non-bank lending business aims to build a portfolio of well-secured agricultural real estate loans but faces near-term capital constraints. - The company plans to continue building a scalable non-bank lending business, initially focusing on loans secured by agricultural real estate, with a strategy to develop niche products and effective funding structures[127][128] - Capital for the lending business will be significantly constrained in the near term due to the Bloomia acquisition, leading to anticipated minimal revenue and operating losses for the remainder of 2024[129] Sale of In-Store Marketing Business The In-Store Marketing Business was sold for $3.5 million in August 2023, incurring significant severance and separation benefits. - The In-Store Marketing Business was sold on August 3, 2023, for $3.5 million, with a post-closing adjustment reducing cash consideration by $1.5 million[130] - Transaction-related severance and separation benefits totaled approximately $1,416,000, with $490,000 attributed to the discontinued In-Store Marketing Business[131] Results of Operations The company reported a net loss from continuing operations of $3.021 million in 2023, an increase from $2.294 million in 2022, primarily due to higher operating expenses. Consolidated Statements of Operations (Continuing Operations) | Item | Year Ended Dec 31, 2023 ($) | Year Ended Dec 31, 2022 ($) | Increase (decrease) from 2022 to 2023 (Amount) ($) | Increase (decrease) from 2022 to 2023 (Percent) (%) | | :--------------------------------------- | :---------------------- | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | | Sales and marketing | $196,000 | $- | $196,000 | 100.0% | | General and administrative | $3,323,000 | $2,442,000 | $881,000 | 36.1% | | Total operating expenses | $3,519,000 | $2,442,000 | $1,077,000 | 44.1% | | Operating loss | $(3,519,000) | $(2,442,000) | $(1,077,000) | 44.1% | | Interest income | $518,000 | $154,000 | $364,000 | 236.4% | | Loss from continuing operations before income taxes | $(3,001,000) | $(2,288,000) | $(713,000) | 31.2% | | Income tax expense | $20,000 | $6,000 | $14,000 | 233.3% | | Net loss from continuing operations | $(3,021,000) | $(2,294,000) | $(727,000) | 31.7% | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | $(9,866,000) | -80.0% | | Gain from sale of discontinued operations, net of tax | $2,961,000 | $- | $2,961,000 | 100.0% | | Net income | $2,414,000 | $10,046,000 | $(7,632,000) | -76.0% | - General and administrative expenses increased by 36.1% to $3,323,000 in 2023, primarily due to $926,000 in severance benefits for the previous CEO[135] - Interest income significantly increased by 236.4% to $518,000 in 2023, driven by higher invested balances in short-term treasury bills and interest-bearing savings, and higher interest rates[136] - Net loss from continuing operations increased to $3,021,000 in 2023 from $2,294,000 in 2022[138] - Income from discontinued operations, net of tax, decreased significantly from $12,340,000 in 2022 (including a $12 million litigation settlement gain) to $2,474,000 in 2023, which also included a $2,961,000 gain from the sale of discontinued operations[139] Liquidity and Capital Resources Working capital and cash increased in 2023, but the Bloomia acquisition significantly leveraged the balance sheet, with future growth requiring additional capital. - Working capital increased to $15,525,000 at December 31, 2023, from $13,379,000 at December 31, 2022[140] - Cash, cash equivalents, and restricted cash increased by $1,553,000 to $16,077,000 at December 31, 2023[140] - Net cash used in continuing operating activities was $2,905,000 in 2023, while net cash provided by investing activities from continuing operations was $1,532,000, primarily from the sale of the In-Store Marketing Business[141][142] - The Bloomia acquisition in February 2024 was financed with $9.2 million cash, $22.8 million from a new credit facility, and $15.5 million in notes payable, with the credit facility expected to provide sufficient liquidity for the next 12 months[144] - Future growth may require additional capital, which could dilute stockholders or involve restrictive debt covenants, and availability is uncertain[145] Credit Agreement The Credit Agreement provides an $18.0 million term loan and a $6.0 million revolving credit facility for Bloomia, with floating interest rates and financial covenants. - The Credit Agreement, entered into with Tulp 24.1 as borrower, includes an $18.0 million term loan and a $6.0 million revolving credit facility for Bloomia's acquisition and working capital[146] - Borrowings bear interest at Term SOFR for one month plus 3.0%, with a 0.50% commitment fee on unutilized revolving credit[147] - Term loans will be repaid in quarterly installments of $450,000 starting June 30, 2024, with the remaining balance due after five years; the revolving facility matures February 20, 2029[148] - The agreement includes financial covenants (minimum fixed charge coverage ratio, maximum senior cash flow leverage ratio) and customary affirmative/negative covenants restricting Tulp 24.1's ability to incur debt, dispose of assets, or make distributions[149] Notes Payable to Sellers As part of the Bloomia acquisition, Tulp 24.1 issued $12.8 million and $2.7 million in notes payable to sellers, both bearing 8% interest initially. - As part of the Bloomia acquisition financing, Tulp 24.1 issued two sets of notes payable to sellers: $12.8 million with a five-year term (principal payments based on excess cash flow) and $2.7 million with a nine-week term[151] - Both notes bear interest at 8% per annum in the first year, with the $12.8 million note's interest increasing annually by 2 percentage points[151] Critical Accounting Estimates Income Taxes is the primary critical accounting estimate, requiring significant judgment in determining deferred taxes, valuation allowances, and uncertain tax positions. - The primary critical accounting estimate is Income Taxes, involving significant judgment in determining deferred income taxes, valuation allowances, and uncertain tax positions based on future taxable income forecasts and tax regulations[152][153][154] Cautionary Statement Regarding Forward-Looking Statements The report contains forward-looking statements subject to known and unknown risks, including integration challenges, competition, and capital availability. - The report contains forward-looking statements about future performance, liquidity, capital resources, and growth opportunities, which are subject to known and unknown risks and uncertainties[155] - Factors that could cause actual results to differ materially include the ability to integrate Bloomia, competition, customer concentration, interest rate changes, compliance with credit agreements, and capital availability[156] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Lendway is not required to provide market risk disclosures. - Smaller reporting companies are not required to provide disclosure pursuant to this Item[157] Financial Statements and Supplementary Data This section presents consolidated financial statements for 2023 and 2022, detailing balance sheets, operations, equity, cash flows, and notes on accounting policies and subsequent events. Consolidated Balance Sheets (Key Figures) | As of December 31 | 2023 ($) | 2022 ($) | | :------------------------ | :----------- | :----------- | | Total Current Assets | $16,621,000 | $20,753,000 | | Total Assets | $16,673,000 | $20,968,000 | | Total Current Liabilities | $1,096,000 | $7,374,000 | | Total Liabilities | $1,141,000 | $7,567,000 | | Total Stockholders' Equity | $15,532,000 | $13,401,000 | Consolidated Statements of Operations (Key Figures) | Years Ended December 31 | 2023 ($) | 2022 ($) | | :--------------------------------------- | :----------- | :----------- | | Net loss from continuing operations | $(3,021,000) | $(2,294,000) | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | | Gain from sale of discontinued operations, net of tax | $2,961,000 | $- | | Net Income | $2,414,000 | $10,046,000 | | Basic and diluted earnings per share | $1.36 | $5.61 | Consolidated Statements of Cash Flows (Key Figures) | Years Ended December 31 | 2023 ($) | 2022 ($) | | :--------------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $518,000 | $10,663,000 | | Net cash provided by (used in) investing activities | $1,508,000 | $(29,000) | | Net cash (used in) provided by financing activities | $(473,000) | $39,000 | | Increase in cash, cash equivalents and restricted cash | $1,553,000 | $10,673,000 | | Cash, cash equivalents and restricted cash at end of period | $16,077,000 | $14,524,000 | - The Bloomia acquisition on February 22, 2024, for $47.5 million, was financed with $9.2 million cash, $22.8 million from a new credit facility, and $15.5 million in notes payable. The preliminary acquisition valuation is incomplete[232][233] Report of Independent Registered Public Accounting Firm (PCAOB ID 542) This section contains the report from the independent registered public accounting firm, PCAOB ID 542. Report of Independent Registered Public Accounting Firm (PCAOB ID 23) This section contains the report from the independent registered public accounting firm, PCAOB ID 23. Consolidated Balance Sheets as of December 31, 2023 and 2022 This section presents the company's consolidated balance sheets for December 31, 2023, and 2022. Consolidated Balance Sheets | As of December 31 | 2023 ($) | 2022 ($) | | :--------------------------------------- | :----------- | :----------- | | ASSETS | | | | Cash and cash equivalents | $16,077,000 | $14,439,000 | | Restricted cash | — | $85,000 | | Receivable from escrow account | $200,000 | — | | Income tax receivable | $14,000 | $28,000 | | Prepaid expense | $38,000 | $30,000 | | Other current assets related to discontinued operations | $292,000 | $6,171,000 | | Total Current Assets | $16,621,000 | $20,753,000 | | Property and equipment, net | $35,000 | — | | Operating lease right-of-use assets | $7,000 | — | | Other, net | $10,000 | — | | Non-current assets related to discontinued operations | — | $215,000 | | Total Other Assets | $52,000 | $215,000 | | Total Assets | $16,673,000 | $20,968,000 | | LIABILITIES AND STOCKHOLDER'S' EQUITY | | | | Accounts payable | $32,000 | $138,000 | | Accrued liabilities: Compensation | $635,000 | $264,000 | | Accrued liabilities: Other | $168,000 | $306,000 | | Current portion of operating lease liabilities | $4,000 | — | | Current liabilities related to discontinued operations | $257,000 | $6,666,000 | | Total Current Liabilities | $1,096,000 | $7,374,000 | | Accrued income taxes | $42,000 | $53,000 | | Operating lease liabilities | $3,000 | — | | Non-current liabilities related to discontinued operations | — | $140,000 | | Total Long-Term Liabilities | $45,000 | $193,000 | | Common stock, par value $.01 | $17,000 | $18,000 | | Additional paid-in capital | $16,176,000 | $16,458,000 | | Accumulated deficit | $(661,000) | $(3,075,000) | | Total Stockholders' Equity | $15,532,000 | $13,401,000 | | Total Liabilities and Stockholders' Equity | $16,673,000 | $20,968,000 | Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 This section presents the company's consolidated statements of operations for the years ended December 31, 2023, and 2022. Consolidated Statements of Operations | Years Ended December 31 | 2023 ($) | 2022 ($) | | :--------------------------------------- | :----------- | :----------- | | Sales and marketing | $196,000 | $- | | General and administrative | $3,323,000 | $2,442,000 | | Total Operating Expenses | $3,519,000 | $2,442,000 | | Operating Loss | $(3,519,000) | $(2,442,000) | | Interest income | $518,000 | $154,000 | | Loss from continuing operations before income taxes | $(3,001,000) | $(2,288,000) | | Income tax expense | $20,000 | $6,000 | | Net loss from continuing operations | $(3,021,000) | $(2,294,000) | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | | Gain from sale of discontinued operations, net of tax | $2,961,000 | $- | | Net Income | $2,414,000 | $10,046,000 | | Net income (loss) per basic and diluted share: Continuing operations | $(1.70) | $(1.28) | | Net income (loss) per basic and diluted share: Discontinued operations | $3.06 | $6.89 | | Basic and diluted earnings per share | $1.36 | $5.61 | | Shares used in calculation of net income (loss) per share: Basic and diluted | 1,781,000 | 1,791,000 | Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023 and 2022 This section presents the company's consolidated statements of stockholders' equity for the years ended December 31, 2023, and 2022. Consolidated Statements of Stockholders' Equity | | Common Stock Shares | Common Stock Amount ($) | Additional Paid-In Capital ($) | Accumulated Deficit ($) | Total ($) | | :--------------------------------------- | :-------------------- | :------------------ | :------------------------- | :-------------------- | :------------ | | Balance at January 1, 2022 | 1,782,000 | $18,000 | $16,296,000 | $(13,121,000) | $3,193,000 | | Issuance of common stock, net | 6,000 | — | $39,000 | — | $39,000 | | Issuance of common stock upon vesting of restricted stock units | 9,000 | — | — | — | — | | Value of stock-based compensation | — | — | $123,000 | — | $123,000 | | Net income | — | — | — | $10,046,000 | $10,046,000 | | Balance at December 31, 2022 | 1,797,000 | $18,000 | $16,458,000 | $(3,075,000) | $13,401,000 | | Repurchase of common stock | (84,000) | $(1,000) | $(481,000) | — | $(482,000) | | Issuance of common stock, net | 24,000 | — | $155,000 | — | $155,000 | | Issuance of common stock upon vesting of restricted stock units | 6,000 | — | — | — | — | | Value of stock-based compensation | — | — | $44,000 | — | $44,000 | | Net income | — | — | — | $2,414,000 | $2,414,000 | | Balance at December 31, 2023 | 1,743,000 | $17,000 | $16,176,000 | $(661,000) | $15,532,000 | Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 This section presents the company's consolidated statements of cash flows for the years ended December 31, 2023, and 2022. Consolidated Statements of Cash Flows | Years Ended December 31 | 2023 ($) | 2022 ($) | | :--------------------------------------- | :----------- | :----------- | | Operating Activities: | | | | Net income | $2,414,000 | $10,046,000 | | Income from discontinued operations, net of tax | $(2,474,000) | $(12,340,000) | | Gain from sale of discontinued operations, net of tax | $(2,961,000) | - | | Net loss from continuing operations | $(3,021,000) | $(2,294,000) | | Net cash used in operating activities of continuing operations | $(2,905,000) | $(2,837,000) | | Net cash provided by operating activities of discontinued operations | $3,423,000 | $13,500,000 | | Net cash provided by operating activities | $518,000 | $10,663,000 | | Investing Activities: | | | | Proceeds from sale of business | $1,581,000 | - | | Purchase of other long-term assets | $(10,000) | - | | Purchases of property and equipment | $(39,000) | - | | Net cash provided by investing activities of continuing operations | $1,532,000 | - | | Net cash used in investing activities of discontinued operations | $(24,000) | $(29,000) | | Net cash provided by (used in) investing activities | $1,508,000 | $(29,000) | | Financing Activities: | | | | Proceeds from issuance of common stock, net | $9,000 | $39,000 | | Repurchase of common stock, net | $(482,000) | - | | Net cash (used in) provided by financing activities | $(473,000) | $39,000 | | Increase in cash, cash equivalents and restricted cash | $1,553,000 | $10,673,000 | | Cash, cash equivalents and restricted cash at beginning of period | $14,524,000 | $3,851,000 | | Cash, cash equivalents and restricted cash at end of period | $16,077,000 | $14,524,000 | Notes to Consolidated Financial Statements This section provides detailed notes explaining the significant accounting policies and financial statement items. 1. Summary of Significant Accounting Policies. This section outlines the company's significant accounting policies, including its business evolution, discontinued operations, cash management, and income tax methods. - The Company's business has evolved into a specialty agricultural and finance company, with a focus on its agricultural investments and a non-bank lending business[181] - The In-Store Marketing Business was sold on August 3, 2023, and its operations are presented as discontinued operations in all periods[182] - On February 22, 2024, the Company acquired majority ownership in Bloomia B.V., a producer of fresh-cut tulip stems[183] - Cash and cash equivalents, totaling $16,077,000 in 2023, are primarily held in interest-bearing investments like U.S. Treasury bills and money market accounts[184][185] - The company uses the liability method for income taxes, providing for deferred taxes based on temporary differences and reducing them by a valuation allowance when realization is unlikely[193] - Stock-based compensation expense is measured at fair value, with restricted stock units and awards valued at the closing market price on the grant date[194] 2. Sale of In-Store Marketing Business and Presentation as Discontinued Operations. The In-Store Marketing Business was sold for $3.5 million in August 2023, resulting in a gain on sale and reporting its operations as discontinued. - The In-Store Marketing Business was sold on August 3, 2023, for a gross price of $3.5 million, resulting in a gain on sale of $3,044,000 before income taxes[200][201] - Transaction-related severance and separation benefits for discontinued operations amounted to approximately $490,000 in 2023[203] Results of Discontinued Operations | Years Ended December 31 | 2023 ($) | 2022 ($) | | :--------------------------------------- | :----------- | :----------- | | Net services revenues | $21,078,000 | $18,800,000 | | Gross Profit | $4,991,000 | $3,301,000 | | Operating Income | $2,371,000 | $12,048,000 | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | | Gain from sale of discontinued operations, net of tax | $2,961,000 | $- | - The 2022 income from discontinued operations included a $12,000,000 gain from a litigation settlement with News America[206] 3. Leases. As of December 31, 2023, the company leased its corporate headquarters, with total lease payments of $8,000 over the remaining term. - As of December 31, 2023, the Company leased its corporate headquarters under a non-cancelable operating lease with monthly payments of $375 through September 30, 2025[208] Maturities of Lease Liabilities (as of Dec 31, 2023) | Year | Amount ($) | | :--- | :------- | | 2024 | $5,000 | | 2025 | $3,000 | | Total lease payments | $8,000 | | Less: Interest | $(1,000) | | Present value of lease liabilities | $7,000 | - The Company used an incremental borrowing rate of approximately 6.0% to determine the present value of lease payments[210] 4. Commitments and Contingencies. The company is subject to routine legal matters, with outcomes not expected to materially affect its financial position or results. - The Company is subject to various legal matters in the normal course of business, with outcomes not expected to materially affect financial position or results[212] 5. Stockholders' Equity. Stock-based compensation expense was $39,000 in 2023, with 1,463 stock options outstanding and an Employee Stock Purchase Plan in place. - Stock-based compensation expense recognized in continuing operations was $39,000 in 2023 and $91,000 in 2022[214] - The Company uses the Black-Scholes option pricing model for fair value estimation, with a 0% dividend yield and varying expected volatility (95% in 2023, 169% in 2022)[214] - As of December 31, 2023, 1,463 stock options with a weighted average exercise price of $15.54 were outstanding, expiring in May 2024, with no intrinsic value[218] - The Employee Stock Purchase Plan (ESPP) allows employees to purchase common stock at 85% of market value; 338 shares were purchased in 2023[223] - The Company intends to retain earnings for business strategy but may consider special dividends in the future[224] 6. Income Taxes. Income tax expense from continuing operations was $20,000 in 2023, with Federal and state NOL carryforwards and a valuation allowance. Income Tax Expense from Continuing Operations | Year Ended December 31 | 2023 ($) | 2022 ($) | | :----------------------- | :----------- | :----------- | | Current taxes - Federal | $- | $- | | Current taxes - State | $20,000 | $6,000 | | Income tax expense | $20,000 | $6,000 | Effective Federal Income Tax Rate Reconciliation | Year Ended December 31 | 2023 (%) | 2022 (%) | | :----------------------- | :----- | :----- | | Federal statutory rate | 21.0% | 21.0% | | Stock-based awards | (0.5)% | (0.7)% | | State benefit | 3.1% | 2.7% | | Valuation allowance | (24.6)% | (24.6)% | | Other | 0.3% | 1.3% | | Effective federal income tax rate | (0.7)% | (0.3)% | - As of December 31, 2023, the Company had Federal pre-tax net operating loss (NOL) carryforwards of approximately $1,607,000 and state NOLs of approximately $2,914,000[226] - The valuation allowance decreased by $530,000 in 2023 and $1,970,000 in 2022, primarily due to the utilization of NOLs against taxable income[227] - A liability for uncertain tax positions of $42,000 was recorded as of December 31, 2023, a decrease from $53,000 in 2022[228][230] 7. Employee Benefit Plans. The company sponsors a 401(k) plan, with matching contributions expense of $13,000 in 2023 for continuing operations. - The Company sponsors a 401(k) Retirement Profit Sharing and Savings Plan, with matching contributions expense of $13,000 in 2023 and $8,000 in 2022 for continuing operations[230] 8. Stock Repurchases. The Board authorized the repurchase of up to 400,000 shares in August 2023, with 84,028 shares repurchased for $482,000 during 2023. - On August 23, 2023, the Board authorized the repurchase of up to 400,000 shares of common stock[231] - During 2023, the Company repurchased 84,028 shares for $482,000[231] 9. Subsequent Events On February 22, 2024, the company acquired Bloomia B.V. for $47.5 million, financed by cash, a new credit facility, and notes payable. - On February 22, 2024, the Company acquired majority ownership in Bloomia B.V. for $47.5 million, financed by $9.2 million cash, $22.8 million from a new credit facility, and $15.5 million in notes payable[232] - The acquisition will be accounted for as a business combination, but the preliminary valuation is incomplete, so pro forma net earnings cannot be provided yet[233][234] - The new Credit Agreement includes an $18.0 million term loan and a $6.0 million revolving credit facility, bearing interest at Term SOFR + 3.0%, with quarterly term loan repayments starting June 30, 2024[235][236][237] - Notes payable to sellers for $12.8 million have a five-year term with interest at 8% (increasing annually), and $2.7 million notes have a nine-week term at 8% interest[240] Changes in and Disagreements With Accountants on Accounting and Financial Disclosures Lendway dismissed Baker Tilly US, LLP and appointed Boulay PLLP as its independent auditor, with no reported disagreements on accounting matters. - On November 20, 2023, Baker Tilly US, LLP was dismissed as the independent registered public accounting firm[242] - Boulay PLLP was appointed as the new independent registered public accounting firm on November 20, 2023, for the fiscal year ending December 31, 2023[242] - There were no disagreements on accounting principles, financial statement disclosure, or auditing scope/procedure with Baker Tilly, nor any 'reportable event' as defined in Regulation S-K[243] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes. - As of December 31, 2023, the Company's principal executive officer and principal accounting officer concluded that disclosure controls and procedures were effective[244] - Management believes its internal control over financial reporting was effective as of December 31, 2023, based on the COSO 2013 Internal Control – Integrated Framework[245] - Control systems have inherent limitations, meaning they can only provide reasonable assurance and may not prevent or detect all fraud or misstatements[246] - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[247] - As a smaller reporting company, an attestation report from the external auditor on the effectiveness of internal control over financial reporting is not required[248] Other Information No other information is required to be disclosed under this item. - None[249] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company. - Not applicable[250] PART III. Directors, Executive Officers and Corporate Governance This section incorporates information on directors, executive officers, and corporate governance from the Proxy Statement, detailing key leadership roles and the Code of Ethics. - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[251] Executive Officers | Name | Age | Position | | :---------------- | :-- | :------------------------------------ | | Randy D. Uglem | 46 | President, Chief Executive Officer and Secretary | | Zackery A. Weber | 44 | Vice President of Finance | | Werner F. Jansen | 33 | Chief Executive Officer of Bloomia B.V. | - Randy D. Uglem has served as President and CEO since August 2023, with over twenty years of experience in credit and lending[252] - Werner F. Jansen has served as CEO of Bloomia B.V. since June 2022, bringing extensive experience in the cut flower industry[254] - The company has a Code of Ethics applicable to senior financial management, available on its website[256] Executive Compensation Executive and non-employee director compensation information is incorporated by reference from the Proxy Statement. - Information on executive compensation and compensation of non-employee directors is incorporated by reference from the Proxy Statement[258] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Equity compensation plan details and security ownership information are incorporated by reference from the Proxy Statement. - Information on equity compensation plan information and security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement[259] Certain Relationships and Related Transactions and Director Independence Information on certain relationships, related-party transactions, and director independence is incorporated by reference from the Proxy Statement. - Information regarding certain relationships and related-party transactions, as well as director independence, is incorporated by reference from the Proxy Statement[260] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the Proxy Statement. - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement[261] PART IV. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed with the Form 10-K, including key agreements and financial statements. - The section includes a list of financial statements incorporated in Item 8, such as Consolidated Balance Sheets, Statements of Operations, Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[262] - A comprehensive list of exhibits is provided, including the Asset Purchase Agreement, Agreement for the Sale and Purchase of Shares (Bloomia), Certificate of Incorporation, Bylaws, various employment and retention agreements, stock and incentive plans, and the Credit Agreement[263][267] - Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K, but copies can be furnished to the SEC upon request[268] Form 10-K Summary No Form 10-K summary is provided under this item. - None[269] SIGNATURES The Form 10-K is signed by the President and CEO, Vice President of Finance, and directors (via attorney-in-fact) as of April 1, 2024. - The report is signed by Randy D. Uglem, President and Chief Executive Officer, and Zackery A. Weber, Vice President of Finance, on April 1, 2024[272] - Randy D. Uglem also signed on behalf of the listed directors pursuant to Powers of Attorney[272][273]