Insignia(LDWY) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for June 30, 2023, reflect the company's financial position, operational results, and cash flows, highlighting its strategic shift to non-bank lending Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $19.76 million from $20.97 million at year-end 2022, while shareholders' equity increased to $15.06 million from $13.40 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $11,419,000 | $14,439,000 | | Accounts receivable, net | $7,583,000 | $5,557,000 | | Total Current Assets | $19,556,000 | $20,753,000 | | Total Assets | $19,760,000 | $20,968,000 | | Total Current Liabilities | $4,525,000 | $7,374,000 | | Total Shareholders' Equity | $15,057,000 | $13,401,000 | Condensed Consolidated Statements of Operations For the six months ended June 30, 2023, the company achieved net income of $1.61 million, a significant improvement from a $1.02 million net loss year-over-year, driven by increased net services revenues Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net services revenues | $6,211,000 | $3,254,000 | $19,042,000 | $9,402,000 | | Gross Profit | $1,623,000 | $416,000 | $4,543,000 | $1,696,000 | | Operating (Loss) Income | ($167,000) | ($1,101,000) | $1,372,000 | ($1,028,000) | | Net (Loss) Income | ($36,000) | ($1,084,000) | $1,612,000 | ($1,022,000) | | Diluted EPS | ($0.02) | ($0.61) | $0.89 | ($0.57) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash used in operating activities was $3.01 million, leading to a $3.02 million decrease in cash, ending at $11.50 million Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,009,000) | ($1,475,000) | | Net cash used in investing activities | ($19,000) | ($28,000) | | Net cash provided by financing activities | $8,000 | $39,000 | | Decrease in cash | ($3,020,000) | ($1,464,000) | | Cash at end of period | $11,504,000 | $2,387,000 | Notes to Condensed Consolidated Financial Statements The notes detail significant corporate changes, including the company's reincorporation as Lendway, Inc., the $3.5 million sale of its legacy business, and accounting policies, including a $1.3 million Federal NOL carryforward - Effective August 4, 2023, the company changed its name to Lendway, Inc., reincorporated to Delaware, and is now focused on building a non-bank lending business[24] - On August 3, 2023, the company sold its legacy in-store advertising business for $3.5 million to TIMIBO LLC, with operations to be presented as discontinued starting Q3 2023[25][28] - For the six months ended June 30, 2023, two customers accounted for 27% and 18% of legacy business net sales, with one customer representing 70% of total accounts receivable at period-end[65] - As of June 30, 2023, the company estimates approximately $1.3 million in Federal net operating loss (NOL) carryforwards are available to offset future taxable income[65][105] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic transformation to a non-bank lending business, highlighting strong legacy business revenue growth, a shift to profitability, and the sufficiency of its $11.5 million cash position for the next 12 months Company Overview and Recent Developments The company is building a non-bank lending business focused on agricultural real estate, following the $3.5 million sale of its legacy advertising business and its reincorporation as Lendway, Inc - The company is launching a non-bank lending business focused on purchasing, originating, and funding collateral-secured loans, initially targeting agricultural real estate[72][73] - On August 3, 2023, the company sold its legacy in-store advertising business for $3.5 million cash to TIMIBO LLC[78] - The asset sale incurred approximately $350,000 in transaction costs and $1.54 million in severance and separation benefits, to be expensed in Q3 2023[82] Results of Operations Net sales for H1 2023 increased 102.5% to $19.0 million, driven by a large display program, significantly improving gross profit margins to 23.9% for the period, despite increased operating expenses Financial Performance Comparison | Metric | Q2 2023 | Q2 2022 | Y/Y Change | H1 2023 | H1 2022 | Y/Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $6,211,000 | $3,254,000 | +90.9% | $19,042,000 | $9,402,000 | +102.5% | | Gross Profit | $1,623,000 | $416,000 | +290.1% | $4,543,000 | $1,696,000 | +167.9% | | Gross Margin | 26.1% | 12.8% | +13.3pp | 23.9% | 18.0% | +5.9pp | - General and administrative expenses in Q2 2023 increased 19.1% to $1.13 million, driven by $339,000 in legacy business sale costs and $101,000 for the new lending business[97] - Interest income significantly increased in 2023 due to higher invested balances from the $12 million litigation settlement received in July 2022 and higher interest rates[99] Supplemental Operating Results on a Pro Forma Basis Pro forma results for continuing operations (new lending business) show no revenue and a $422,000 loss before taxes for Q2 2023, with minimal revenue and continued losses anticipated for the remainder of the year Pro Forma Results for Continuing Operations (Q2) | Metric | 2023 Pro Forma | 2022 Pro Forma | | :--- | :--- | :--- | | General and administrative | $557,000 | $432,000 | | Operating loss from continuing operations | ($557,000) | ($432,000) | | Interest income | $135,000 | $31,000 | | Loss before taxes from continuing operations | ($422,000) | ($401,000) | - The increase in pro forma G&A expenses was primarily due to $101,000 in incremental expenses for the new non-bank lending business in Q2 2023[111] - The company anticipates minimal revenue and continued losses from its continuing non-bank lending operations for the rest of the year[106][113] Liquidity and Capital Resources As of June 30, 2023, the company had $15.0 million in working capital and $11.5 million in cash, deemed sufficient for the next 12 months, though future growth may require additional capital - At June 30, 2023, the company had $11.5 million in cash and cash equivalents plus restricted cash[118] - Working capital increased to $15.0 million at June 30, 2023, from $13.4 million at December 31, 2022[114] - The company believes its current cash balances will be sufficient for its cash requirements for at least the next 12 months[118] Quantitative and Qualitative Disclosures about Market Risk This section is not applicable for the reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[125] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with new controls implemented for the non-bank lending business - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2023[127] - The company implemented new controls related to its non-bank lending business during the quarter[128] PART II. OTHER INFORMATION Legal Proceedings The company reports no material pending legal proceedings beyond ordinary routine litigation incidental to its business - There are no material pending legal proceedings to which the company is a party[130] Risk Factors The company highlights new risk factors for its non-bank lending business, including limited operating history, substantial loss risk, market restrictions, operational development needs, and dependence on key employees - The new non-bank lending business has a limited operating history, making future prospects and risks difficult to evaluate[132] - Non-bank lending involves a substantial risk of loss from borrower defaults, potentially materially affecting business operations and financial condition[134] - The new business requires developing new processes, systems, and controls, exposing it to operational risks such as failed execution or fraud[136][141] - The success of the lending business will initially depend on a small number of key employees[137] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the reporting period - None reported for the period[138]