Insignia(LDWY) - 2023 Q4 - Annual Report

Part I Business Lendway, Inc. has strategically transformed into a specialty agricultural and finance company through divestitures and key acquisitions, now operating in Specialty Ag and Non-bank Lending segments with a near-term focus on Bloomia - Effective August 4, 2023, the company changed its name from Insignia Systems, Inc. to Lendway, Inc. and its stock symbol to "LDWY"[11] - On August 3, 2023, the company sold its legacy In-Store Marketing Business for $3.5 million, now reported as discontinued operations[14][15] - On February 22, 2024, the company acquired a majority ownership (81.4%) of Bloomia B.V., a leading U.S. producer of fresh cut tulips, for $47.5 million[16][18] - The company launched a non-bank lending business, FarmlandCredit.com, in April 2023, initially focusing on loans secured by agricultural real estate[12][13][41] Specialty Ag Segment The Specialty Ag segment, comprising Bloomia's operations, is a leading U.S. producer of fresh cut tulips, focusing on domestic hydroponic growing for quality and efficiency - Bloomia produced over 75 million tulip stems annually in 2023 and 2022[21] - The U.S. cut flower market is estimated at $8 billion for 2023, with tulips representing about 15% of sales, and Bloomia holding a 20% market share of U.S.-grown cut tulips[28] - Three customers accounted for 37.7%, 16.2%, and 10.4% of Bloomia's U.S. revenue in 2023, indicating significant customer concentration[27] - Bloomia sources bulbs from the Netherlands, Chile, and New Zealand, enabling year-round production and reducing reliance on importing stems by air[22][39] Non-Bank Lending Segment The Non-Bank Lending segment, launched in April 2023, aims to build a scalable collateral-secured lending business, but its near-term growth is constrained by capital allocation to the Bloomia acquisition - The lending business was launched in April 2023 with the hiring of a Senior Vice President of Lending[41] - Due to capital being allocated to the Bloomia acquisition, the lending business is expected to have minimal revenue and operating losses in 2024[45] Human Capital Resources As of March 1, 2024, the company and its subsidiaries employed 156 individuals, including 54 seasonal workers, with a focus on supporting peak demand through temporary worker programs and employee well-being - As of March 1, 2024, the company had 156 employees, with 54 being seasonal[50] - Approximately 50% of hourly workers in 2023 were hired for seasonal support during the peak period from January to May[50] Risk Factors The company faces substantial risks from its new business model, including high dependency on Bloomia, customer concentration, floating interest rate debt, and operational challenges in agriculture and international management - The company's results are highly dependent on the success of the Bloomia business, as a substantial portion of capital has been committed to it[60] - In 2023, three customers accounted for approximately 64.3% of Bloomia's revenue, posing a concentration risk[56] - The majority of the company's debt carries floating interest rates tied to SOFR, exposing it to interest rate fluctuations[58] - The Credit Agreement restricts Bloomia's ability to make distributions to Lendway, which may constrain cash available for corporate expenses and the Lending Business[67] - A significant stockholder group holds approximately 38.9% of outstanding common shares, which may allow them to exercise a degree of control over stockholder matters[92] Cybersecurity Lendway's cybersecurity, primarily managed by an outsourced IT provider, is overseen by the Board and Audit Committee, with Bloomia's IT environment now integrated into corporate oversight following its acquisition - The company's IT operations and cybersecurity were primarily outsourced as of year-end 2023[97] - The Board of Directors and Audit Committee provide oversight of the cybersecurity risk management program[98] - Following the acquisition, Bloomia's IT environment will be included in the company's cybersecurity processes and oversight[99] Properties The company's facilities are deemed adequate for current and future needs, including a corporate headquarters in Minneapolis and key leased properties for Bloomia's operations in Virginia, the Netherlands, and South Africa - The company leases its corporate headquarters in Minneapolis, MN (1,700 sq. ft.)[103] - Bloomia's key leased facilities include a 360,000 sq. ft. greenhouse in Virginia, a 107,000 sq. ft. facility in the Netherlands, and a 21,000 sq. ft. greenhouse in South Africa[103] Legal Proceedings The company is involved in routine legal actions, but their outcomes are not anticipated to materially affect its financial position or operational results - The company states that the outcome of current legal matters is not expected to have a material effect on its financial position or results of operations[106] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under LDWY, with approximately 115 record holders, and a stock repurchase program was approved in August 2023, though regular dividends are not historically paid - The company's common stock is listed on the Nasdaq Capital Market under the symbol LDWY[109] - A stock repurchase authorization for up to 400,000 shares was approved on August 28, 2023[112] Share Repurchase Activity (Q4 2023) | Period | Total shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans | Approximate dollar value of shares purchased under the plans | | :--- | :--- | :--- | :--- | :--- | | October 1 - 31, 2023 | 5,546 | $5.09 | 5,546 | $27,864 | | November 1 - 30, 2023 | 3,137 | $4.99 | 3,137 | $16,267 | | December 1 - 31, 2023 | - | - | - | - | | Total | 8,683 | | 8,683 | $44,131 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company's FY2023 financial results reflect its strategic transformation, with a net loss from continuing operations offset by gains from discontinued operations, maintaining strong liquidity despite significant post-year-end cash usage for the Bloomia acquisition Results of Operations For FY2023, the company reported an increased net loss from continuing operations of $3.02 million, primarily due to higher G&A expenses, while total net income decreased significantly from 2022 due to lower income from discontinued operations Consolidated Statements of Operations Summary (Continuing Operations) | | Year Ended December 31, 2023 | Year Ended December 31, 2022 | % Change | | :--- | :--- | :--- | :--- | | General and administrative | $3,323,000 | $2,442,000 | 36.1% | | Operating loss | ($3,519,000) | ($2,442,000) | 44.1% | | Interest income | $518,000 | $154,000 | 236.4% | | Net loss from continuing operations | ($3,021,000) | ($2,294,000) | 31.7% | | Income from discontinued operations, net of tax | $2,474,000 | $12,340,000 | -80.0% | | Gain from sale of discontinued operations, net of tax | $2,961,000 | - | 100.0% | | Net income | $2,414,000 | $10,046,000 | -76.0% | - The increase in G&A expenses was primarily due to $926,000 in transaction-related severance and separation benefits for the former CEO[129] - Interest income increased significantly due to higher invested balances from a 2022 litigation settlement and proceeds from the business sale, coupled with higher interest rates[130] Liquidity and Capital Resources As of December 31, 2023, the company maintained strong liquidity with $16.1 million in cash, which was subsequently used along with new debt to fund the $47.5 million Bloomia acquisition, ensuring sufficient liquidity for the next 12 months Key Liquidity Metrics (Year-End) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $16,077,000 | $14,524,000 | | Working Capital | $15,525,000 | $13,379,000 | - Net cash used in continuing operating activities was $2.9 million in 2023[135] - The Bloomia acquisition was funded with $9.2 million of company cash, a $22.8 million credit facility, and $15.5 million in seller notes[138] Credit Agreement To finance the Bloomia acquisition, the company secured a new credit agreement comprising an $18.0 million term loan and a $6.0 million revolving facility, with interest at Term SOFR plus 3.0% and financial covenants restricting Bloomia's distributions - The credit facility consists of an $18.0 million term loan and a $6.0 million revolving line of credit[140] - Interest is charged at Term SOFR plus 3.0%[141] - The agreement includes financial covenants such as a minimum fixed charge coverage ratio of 1.25 to 1.00 and a maximum senior cash flow leverage ratio of 3.0 to 1.0 initially[143] Financial Statements and Supplementary Data The consolidated financial statements for 2023 and 2022 reflect the company's strategic shift, showing decreased total assets and liabilities but increased stockholders' equity following the sale of its legacy business Consolidated Balance Sheet Summary | | Dec 31, 2023 | Dec 31, 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 Statement of Operations Summary | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 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 EPS | $1.36 | $5.61 | Notes to Consolidated Financial Statements The notes detail key accounting policies and significant events, including the $3.04 million gain from the sale of the In-Store Marketing Business, the company's tax situation with NOL carryforwards and a valuation allowance, and the subsequent $47.5 million Bloomia acquisition and its financing - The sale of the In-Store Marketing Business on August 3, 2023 resulted in a pre-tax gain of $3,044,000[187][188] - As of Dec 31, 2023, the company had a federal net operating loss (NOL) carryforward of approximately $1.6 million and state NOLs of $2.9 million[212] - A valuation allowance of $645,000 was recorded against deferred tax assets as of Dec 31, 2023, as their realization is not more likely than not[212][213] - Subsequent to year-end, on February 22, 2024, the company acquired Bloomia for $47.5 million, financed with cash, a new credit facility, and seller notes[218] Changes in and Disagreements With Accountants on Accounting and Financial Disclosures On November 20, 2023, the company changed its independent registered public accounting firm from Baker Tilly US, LLP to Boulay PLLP, reporting no disagreements on accounting or auditing matters - On November 20, 2023, the company changed its independent registered public accounting firm from Baker Tilly US, LLP to Boulay PLLP[227] - There were no disagreements with the former auditor, Baker Tilly, on accounting or auditing matters[228] Controls and Procedures As of December 31, 2023, management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective, with no material changes reported in the most recent fiscal quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[229] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[230] Part III Directors, Executive Officers and Corporate Governance This section outlines the company's executive officers, including Randy D. Uglem (President and CEO), Zackery A. Weber (VP of Finance), and Werner F. Jansen (CEO of Bloomia B.V.), with further details on directors and governance incorporated by reference from the 2024 Proxy Statement - Information regarding directors and corporate governance is incorporated by reference from the 2024 Annual Meeting Proxy Statement[236] 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. | Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to executive compensation is incorporated by reference from the 2024 Proxy Statement[242] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, along with details on equity compensation plans, is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to security ownership is incorporated by reference from the 2024 Proxy Statement[243] Certain Relationships and Related Transactions and Director Independence Information regarding related-party transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to certain relationships and director independence is incorporated by reference from the 2024 Proxy Statement[244] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - All information related to principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement[245] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements from Item 8 and the exhibits filed with the Annual Report on Form 10-K, including key agreements for the sale of the legacy business, the Bloomia acquisition, and the new Credit Agreement - Key exhibits filed include the Asset Purchase Agreement (Exhibit 2.1), the Bloomia Share Purchase Agreement (Exhibit 2.2), and the new Credit Agreement (Exhibit 10.22)[247][251]