UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_______________________________ ______________________________
FORM 10-Q
☒ |
|
for the quarterly period ended September 30, 20222023
or
☐
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from ___________ to ____________
Commission File Number: 1-13471
|
(Exact name of registrant as specified in its charter) |
|
| 41-1656308 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
(Address of principal executive offices; zip code) |
(763) 392-6200 |
(Registrant’s telephone number, including area code) |
Securities registered to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
Common Stock, $0.01 par value |
|
|
| The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:Act.:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares outstanding of Common Stock, $.01 par value, as of November 7, 20228, 2023 was 1,796,506.1,745,736.
InsigniaEXPLANATORY NOTE
This Quarterly Report on Form 10-Q is being filed by the registrant, Lendway, Inc., a Delaware corporation(the “Company”). Effective August 4, 2023 we changed our name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware. As part of the name change, our common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC.
On August 3, 2023, the Company sold certain assets and certain liabilities relating to the Company’s business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “In-Store Marketing Business”) for a sale price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement dated May 24, 2023 (the “Purchase Agreement”). The Company retained accounts receivable, as well as all cash, cash equivalents and marketable securities, and certain liabilities. The cash consideration for the sale was subject to a post-closing adjustment that depended on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs.
The operations of the In-Store Marketing Business are presented as a discontinued operations beginning with this Quarterly Report on Form 10-Q for the three months ended September 30, 2023, the quarter in which the sale of the In-Store Marketing Business met the criteria as discontinued operations. All previous periods presented have been restated to present the In-Store Marketing Business as discontinued operations. See Note 2 of the Notes to the Condensed Consolidated Financial Statements appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q for a further description of the impacts of the sale of the In-Store Marketing Business on the condensed consolidated financial statements.
The Company is building a scalable non-bank lending business to purchase existing loans or originate and fund new loans, all of which will be secured by collateral.
Lendway, Inc.
TABLE OF CONTENTS
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| Condensed Consolidated Balance Sheets – September 30, |
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| 4 | ||
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| 6 | ||
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| Notes to Condensed Consolidated Financial Statements – (unaudited) |
| 7 | |
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Table of Contents |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Insignia Systems, Inc. | ||||||||
CONDENSED BALANCE SHEETS | ||||||||
|
|
|
|
|
|
| ||
|
| September 30, |
|
|
|
| ||
|
| 2022 |
|
| December 31, |
| ||
|
| (Unaudited) |
|
| 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 14,168,000 |
|
| $ | 3,766,000 |
|
Restricted cash |
|
| 85,000 |
|
|
| 85,000 |
|
Accounts receivable, net |
|
| 4,723,000 |
|
|
| 5,247,000 |
|
Inventories |
|
| 37,000 |
|
|
| 19,000 |
|
Income taxes receivable |
|
| - |
|
|
| 4,000 |
|
Prepaid production costs |
|
| 636,000 |
|
|
| 867,000 |
|
Other prepaid expense |
|
| 208,000 |
|
|
| 366,000 |
|
Total Current Assets |
|
| 19,857,000 |
|
|
| 10,354,000 |
|
|
|
|
|
|
|
|
|
|
Other Assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 84,000 |
|
|
| 113,000 |
|
Operating lease right-of-use assets |
|
| 126,000 |
|
|
| 183,000 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 20,067,000 |
|
| $ | 10,650,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 1,944,000 |
|
|
| 2,539,000 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Compensation |
|
| 930,000 |
|
|
| 464,000 |
|
Sales tax |
|
| 775,000 |
|
|
| 1,287,000 |
|
Other |
|
| 736,000 |
|
|
| 1,430,000 |
|
Income taxes payable |
|
| 482,000 |
|
|
| - |
|
Current portion of operating lease liabilities |
|
| 71,000 |
|
|
| 76,000 |
|
Deferred revenue |
|
| 919,000 |
|
|
| 842,000 |
|
Total Current Liabilities |
|
| 5,857,000 |
|
|
| 6,638,000 |
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
| 52,000 |
|
|
| 711,000 |
|
Operating lease liabilities |
|
| 56,000 |
|
|
| 108,000 |
|
Total Long-Term Liabilities |
|
| 108,000 |
|
|
| 819,000 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $0.01: |
|
|
|
|
|
|
|
|
Authorized shares - 5,714,000 |
|
|
|
|
|
|
|
|
Issued and outstanding shares - 1,796,000 at September 30, 2022 and 1,782,000 at December 31, 2021, respectively |
|
| 18,000 |
|
|
| 18,000 |
|
Additional paid-in capital |
|
| 16,426,000 |
|
|
| 16,296,000 |
|
Accumulated deficit |
|
| (2,342,000 | ) |
|
| (13,121,000 | ) |
Total Shareholders' Equity |
|
| 14,102,000 |
|
|
| 3,193,000 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity |
| $ | 20,067,000 |
|
| $ | 10,650,000 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements. |
Insignia Systems, Inc. | ||||||||||||||||
CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30 |
|
| September 30 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net services revenues |
| $ | 4,869,000 |
|
| $ | 3,493,000 |
|
| $ | 14,271,000 |
|
| $ | 14,975,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
| 4,031,000 |
|
|
| 2,948,000 |
|
|
| 11,737,000 |
|
|
| 12,293,000 |
|
Gross Profit |
|
| 838,000 |
|
|
| 545,000 |
|
|
| 2,534,000 |
|
|
| 2,682,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
| 294,000 |
|
|
| 425,000 |
|
|
| 926,000 |
|
|
| 1,406,000 |
|
Marketing |
|
| 249,000 |
|
|
| 266,000 |
|
|
| 787,000 |
|
|
| 761,000 |
|
General and administrative |
|
| 756,000 |
|
|
| 779,000 |
|
|
| 2,310,000 |
|
|
| 4,052,000 |
|
Total Operating Expenses |
|
| 1,299,000 |
|
| 1,470,000 |
|
|
| 4,023,000 |
|
| 6,219,000 |
| ||
Gain from litigation settlement, net |
|
| 12,000,000 |
|
|
| — |
|
|
| 12,000,000 |
|
|
| — |
|
Operating Income (Loss) |
|
| 11,539,000 |
|
|
| (925,000 | ) |
|
| 10,511,000 |
|
|
| (3,537,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of debt and accrued interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,062,000 |
|
Other income (expense) |
|
| 72,000 |
|
|
| 13,000 |
|
|
| 100,000 |
|
|
| (45,000 | ) |
Total Other Income |
|
| 72,000 |
|
|
| 13,000 |
|
|
| 100,000 |
|
|
| 1,017,000 |
|
Income (Loss) Before Taxes |
|
| 11,611,000 |
|
|
| (912,000 | ) |
|
| 10,611,000 |
|
|
| (2,520,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benfit) expense |
|
| (190,000 | ) |
|
| 9,000 |
|
|
| (168,000 | ) |
|
| 32,000 |
|
Net Income (Loss) |
| $ | 11,801,000 |
|
| $ | (921,000 | ) |
| $ | 10,779,000 |
|
| $ | (2,552,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 6.57 |
|
| $ | (0.52 | ) |
| $ | 6.02 |
|
| $ | (1.45 | ) |
Diluted |
| $ | 6.57 |
|
| $ | (0.52 | ) |
| $ | 6.00 |
|
| $ | (1.45 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Shares used in calculation of net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 1,795,000 |
|
|
| 1,766,000 |
|
|
| 1,790,000 |
|
|
| 1,757,000 |
|
Diluted |
|
| 1,796,000 |
|
|
| 1,766,000 |
|
|
| 1,796,000 |
|
|
| 1,757,000 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes to financial statements. |
|
|
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|
|
|
|
Insignia Systems, Inc. | ||||||||||||||||||||
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
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|
| |||||
|
|
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|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
Balance at December 31, 2021 |
|
| 1,782,000 |
|
| $ | 18,000 |
|
| $ | 16,296,000 |
|
| $ | (13,121,000 | ) |
| $ | 3,193,000 |
|
Issuance of common stock, net |
|
| 4,000 |
|
|
| — |
|
|
| 28,000 |
|
|
| — |
|
|
| 28,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 30,000 |
|
|
| — |
|
|
| 30,000 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 62,000 |
|
|
| 62,000 |
|
Balance at March 31, 2022 |
|
| 1,786,000 |
|
| $ | 18,000 |
|
| $ | 16,354,000 |
|
| $ | (13,059,000 | ) |
| $ | 3,313,000 |
|
Issuance of common stock, net |
|
| 1,000 |
|
|
| — |
|
|
| 11,000 |
|
|
| — |
|
|
| 11,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 29,000 |
|
|
| — |
|
|
| 29,000 |
|
Issuance of common stock upon vesting of restricted stock units |
|
| 6,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,084,000 | ) |
|
| (1,084,000 | ) |
Balance at June 30, 2022 |
|
| 1,793,000 |
|
| $ | 18,000 |
|
| $ | 16,394,000 |
|
| $ | (14,143,000 | ) |
| $ | 2,269,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 32,000 |
|
|
| — |
|
|
| 32,000 |
|
Issuance of common stock upon vesting of restricted stock units |
|
| 3,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,801,000 |
|
|
| 11,801,000 |
|
Balance at September 30, 2022 |
|
| 1,796,000 |
|
| $ | 18,000 |
|
| $ | 16,426,000 |
|
| $ | (2,342,000 | ) |
| $ | 14,102,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
| Additional |
|
|
|
|
|
|
| ||||||||
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
Balance at December 31, 2020 |
|
| 1,748,000 |
|
| $ | 17,000 |
|
| $ | 16,238,000 |
|
| $ | (9,587,000 | ) |
| $ | 6,668,000 |
|
Issuance of common stock, net |
|
| 6,000 |
|
|
| 1,000 |
|
|
| 25,000 |
|
|
| — |
|
|
| 26,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 56,000 |
|
|
| — |
|
|
| 56,000 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (737,000 | ) |
|
| (737,000 | ) |
Balance at March 31, 2021 |
|
| 1,754,000 |
|
| $ | 18,000 |
|
| $ | 16,319,000 |
|
| $ | (10,324,000 | ) |
| $ | 6,013,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 86,000 |
|
|
| — |
|
|
| 86,000 |
|
Repurchase of common stock upon vesting of restricted stock units |
|
| 11,000 |
|
|
| — |
|
|
| (9,000 | ) |
|
| — |
|
|
| (9,000 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (894,000 | ) |
|
| (894,000 | ) |
Balance at June 30, 2021 |
|
| 1,765,000 |
|
| $ | 18,000 |
|
| $ | 16,396,000 |
|
| $ | (11,218,000 | ) |
| $ | 5,196,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 56,000 |
|
|
| — |
|
|
| 56,000 |
|
Repurchase of common stock upon vesting of restricted stock units |
|
| 3,000 |
|
|
| — |
|
|
| (9,000 | ) |
|
| — |
|
|
| (9,000 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (921,000 | ) |
|
| (921,000 | ) |
Balance at September 30, 2021 |
|
| 1,768,000 |
|
| $ | 18,000 |
|
| $ | 16,443,000 |
|
| $ | (12,139,000 | ) |
| $ | 4,322,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lendway, Inc. and Subsidiaries | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
|
|
|
|
|
|
| ||
|
| September 30, |
|
|
|
| ||
|
| 2023 |
|
| December 31, |
| ||
|
| (Unaudited) |
|
| 2022 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 14,954,000 |
|
| $ | 14,439,000 |
|
Restricted cash |
|
| 85,000 |
|
|
| 85,000 |
|
Receivable from escrow account |
|
| 200,000 |
|
|
| — |
|
Income tax receivable |
|
| 26,000 |
|
|
| 28,000 |
|
Prepaid expense |
|
| 123,000 |
|
|
| 30,000 |
|
Other current assets related to discontinued operations |
|
| 2,199,000 |
|
|
| 6,171,000 |
|
Total Current Assets |
|
| 17,587,000 |
|
|
| 20,753,000 |
|
|
|
|
|
|
|
|
|
|
Other Assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 41,000 |
|
|
| — |
|
Other, net |
|
| 10,000 |
|
|
| — |
|
Non-current related to discontinued operations |
|
| — |
|
|
| 215,000 |
|
Total Other Assets |
|
| 51,000 |
|
|
| 215,000 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 17,638,000 |
|
| $ | 20,968,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 96,000 |
|
|
| 138,000 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Compensation |
|
| 888,000 |
|
|
| 264,000 |
|
Other |
|
| 164,000 |
|
|
| 306,000 |
|
Current liabilities related to discontinued operations |
|
| 547,000 |
|
|
| 6,666,000 |
|
Total Current Liabilities |
|
| 1,695,000 |
|
|
| 7,374,000 |
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
Accrued income taxes |
|
| 41,000 |
|
|
| 53,000 |
|
Non-current liabilities related to discontinued operations |
|
| — |
|
|
| 140,000 |
|
Total Long-Term Liabilities |
|
| 41,000 |
|
|
| 193,000 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity: |
|
|
|
|
|
|
|
|
Common stock, par value $0.01: |
|
|
|
|
|
|
|
|
Authorized shares - 5,714,000 |
|
|
|
|
|
|
|
|
Issued and outstanding shares - 1,751,000 at September 30, 2023 and 1,797,000 at December 31, 2022, respectively |
|
| 18,000 |
|
|
| 18,000 |
|
Additional paid-in capital |
|
| 16,221,000 |
|
|
| 16,458,000 |
|
Accumulated deficit |
|
| (337,000 | ) |
|
| (3,075,000 | ) |
Total Shareholders' Equity |
|
| 15,902,000 |
|
|
| 13,401,000 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity |
| $ | 17,638,000 |
|
| $ | 20,968,000 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements. |
3 |
Table of Contents |
Insignia Systems, Inc. | ||||||||
CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30 |
| 2022 |
|
| 2021 |
| ||
Operating Activities: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 10,779,000 |
|
| $ | (2,552,000 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 46,000 |
|
|
| 46,000 |
|
Gain on sale of property and equipment |
|
| — |
|
|
| (7,000 | ) |
Changes in allowance for doubtful accounts |
|
| (50,000 | ) |
|
| 34,000 |
|
Stock-based compensation expense |
|
| 91,000 |
|
|
| 198,000 |
|
Gain on forgiveness of debt and accrued interest |
|
| — |
|
|
| (1,062,000 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 574,000 |
|
|
| 1,620,000 |
|
Inventories |
|
| (18,000 | ) |
|
| (2,000 | ) |
Income taxes receivable |
|
| 4,000 |
|
|
| (1,000 | ) |
Prepaid expenses and other |
|
| 389,000 |
|
|
| (27,000 | ) |
Accounts payable |
|
| (587,000 | ) |
|
| (1,655,000 | ) |
Accrued liabilities |
|
| (740,000 | ) |
|
| 28,000 |
|
Income taxes payable |
|
| 482,000 |
|
|
| — |
|
Accrued income taxes |
|
| (659,000 | ) |
|
| 26,000 |
|
Deferred revenue |
|
| 77,000 |
|
|
| 31,000 |
|
Net cash provided by (used in) operating activities |
|
| 10,388,000 |
|
|
| (3,323,000 | ) |
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (25,000 | ) |
|
| (81,000 | ) |
Sale of property and equipment |
|
| — |
|
|
| 16,000 |
|
Net cash used in investing activities |
|
| (25,000 | ) |
|
| (65,000 | ) |
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net |
|
| 39,000 |
|
|
| 26,000 |
|
Cash dividends paid ($0.70 per share) |
|
| — |
|
|
| (14,000 | ) |
Repuchase of common stock upon vesting of restricted stock awards |
|
| — |
|
|
| (18,000 | ) |
Net cash provided by (used in) financing activities |
|
| 39,000 |
|
|
| (6,000 | ) |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents and restricted cash |
|
| 10,402,000 |
|
|
| (3,394,000 | ) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at beginning of period |
|
| 3,851,000 |
|
|
| 7,128,000 |
|
Cash and cash equivalents and restricted cash at end of period |
| $ | 14,253,000 |
|
| $ | 3,734,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures for cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes |
| $ | 5,000 |
|
| $ | 6,000 |
|
|
|
|
|
|
|
|
|
|
Non-cash financing activity: |
|
|
|
|
|
|
|
|
Operating lease right-of-use asset obtained in exchange for lease obligation |
| $ | - |
|
| $ | 219,000 |
|
Forgiveness of debt and accrued interest |
| $ | - |
|
| $ | 1,062,000 |
|
Purchase of property and equipment included in accounts payable |
| $ | - |
|
| $ | 13,000 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements. |
|
|
|
|
|
|
|
|
Lendway, Inc. and Subsidiaries | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30 |
|
| September 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| $ | 69,000 |
|
| $ | - |
|
| $ | 134,000 |
|
| $ | - |
|
General and administrative |
|
| 1,564,000 |
|
|
| 488,000 |
|
|
| 2,849,000 |
|
|
| 1,663,000 |
|
Total Operating Expenses |
|
| 1,633,000 |
|
|
| 488,000 |
|
|
| 2,983,000 |
|
|
| 1,663,000 |
|
Operating Loss |
|
| (1,633,000 | ) |
|
| (488,000 | ) |
|
| (2,983,000 | ) |
|
| (1,663,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 111,000 |
|
|
| 55,000 |
|
|
| 325,000 |
|
|
| 55,000 |
|
Loss from continuing operations before income taxes |
|
| (1,522,000 | ) |
|
| (433,000 | ) |
|
| (2,658,000 | ) |
|
| (1,608,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
| (11,000 | ) |
|
| 1,000 |
|
|
| (4,000 | ) |
|
| 5,000 |
|
Net loss from continuing operations |
|
| (1,511,000 | ) |
|
| (434,000 | ) |
|
| (2,654,000 | ) |
|
| (1,613,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from discontinued operations, net of tax |
|
| (333,000 | ) |
|
| 12,235,000 |
|
|
| 2,422,000 |
|
|
| 12,392,000 |
|
Gain from sale of discontinued operations, net of tax |
|
| 2,970,000 |
|
|
| - |
|
|
| 2,970,000 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
| $ | 1,126,000 |
|
| $ | 11,801,000 |
|
| $ | 2,738,000 |
|
| $ | 10,779,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per basic and diluted share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (0.85 | ) |
| $ | (0.24 | ) |
| $ | (1.48 | ) |
| $ | (0.90 | ) |
Discontinued operations |
| $ | 1.48 |
|
| $ | 6.82 |
|
| $ | 3.01 |
|
| $ | 6.92 |
|
Basic and diluted earnings per share |
| $ | 0.63 |
|
| $ | 6.58 |
|
| $ | 1.53 |
|
| $ | 6.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 1,785,000 |
|
|
| 1,795,000 |
|
|
| 1,793,000 |
|
|
| 1,790,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
Table of Contents |
Lendway, Inc. and Subsidaries | ||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Common Stock |
|
| Additional Paid-In |
|
| Accumulated |
|
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||||||
Balance at December 31, 2022 |
|
| 1,797,000 |
|
| $ | 18,000 |
|
| $ | 16,458,000 |
|
| $ | (3,075,000 | ) |
| $ | 13,401,000 |
| ||||
Issuance of common stock, net |
|
| 1,000 |
|
|
| — |
|
|
| 8,000 |
|
|
| — |
|
|
| 8,000 |
| ||||
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 22,000 |
|
|
| — |
|
|
| 22,000 |
| ||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,648,000 |
|
|
| 1,648,000 |
| ||||
Balance at March 31, 2023 |
|
| 1,798,000 |
|
| $ | 18,000 |
|
| $ | 16,488,000 |
|
| $ | (1,427,000 | ) |
| $ | 15,079,000 |
| ||||
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 14,000 |
|
|
| — |
|
|
| 14,000 |
| ||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,000 | ) |
|
| (36,000 | ) | ||||
Balance at June 30, 2023 |
|
| 1,798,000 |
|
| $ | 18,000 |
|
| $ | 16,502,000 |
|
| $ | (1,463,000 | ) |
| $ | 15,057,000 |
| ||||
Repurchase of common stock |
|
| (75,000 | ) |
|
| — |
|
|
| (437,000 | ) |
|
| — |
|
|
| (437,000 | ) | ||||
Issuance of common stock, net |
|
| 22,000 |
|
|
| — |
|
|
| 149,000 |
|
|
| — |
|
|
| 149,000 |
| ||||
Issuance of common stock upon vesting of restricted stock units |
|
| 6,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
| ||||
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 7,000 |
|
|
| — |
|
|
| 7,000 |
| ||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,126,000 |
|
|
| 1,126,000 |
| ||||
Balance at September 30, 2023 |
|
| 1,751,000 |
|
| $ | 18,000 |
|
| $ | 16,221,000 |
|
| $ | (337,000 | ) |
| $ | 15,902,000 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Common Stock |
|
| Additional Paid-In |
|
| Accumulated |
|
|
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
Balance at December 31, 2021 |
|
| 1,782,000 |
|
| $ | 18,000 |
|
| $ | 16,296,000 |
|
| $ | (13,121,000 | ) |
| $ | 3,193,000 |
|
Issuance of common stock, net |
|
| 4,000 |
|
|
| — |
|
|
| 28,000 |
|
|
| — |
|
|
| 28,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 30,000 |
|
|
| — |
|
|
| 30,000 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 62,000 |
|
|
| 62,000 |
|
Balance at March 31, 2022 |
|
| 1,786,000 |
|
| $ | 18,000 |
|
| $ | 16,354,000 |
|
| $ | (13,059,000 | ) |
| $ | 3,313,000 |
|
Issuance of common stock, net |
|
| 1,000 |
|
|
| — |
|
|
| 11,000 |
|
|
| — |
|
|
| 11,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 29,000 |
|
|
| — |
|
|
| 29,000 |
|
Issuance of common stock upon vesting of restricted stock units |
|
| 6,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,084,000 | ) |
|
| (1,084,000 | ) |
Balance at June 30, 2022 |
|
| 1,793,000 |
|
| $ | 18,000 |
|
| $ | 16,394,000 |
|
| $ | (14,143,000 | ) |
| $ | 2,269,000 |
|
Value of stock-based compensation |
|
| — |
|
|
| — |
|
|
| 32,000 |
|
|
| — |
|
|
| 32,000 |
|
Issuance of common stock upon vesting of restricted stock units |
|
| 3,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,801,000 |
|
|
| 11,801,000 |
|
Balance at September 30, 2022 |
|
| 1,796,000 |
|
| $ | 18,000 |
|
| $ | 16,426,000 |
|
| $ | (2,342,000 | ) |
| $ | 14,102,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
Table of Contents |
Lendway, Inc. and Subsidiaries | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30 |
| 2023 |
|
| 2022 |
| ||
Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ | 2,738,000 |
|
| $ | 10,779,000 |
|
Income from discontinued operations, net of tax |
|
| (2,422,000 | ) |
|
| (12,392,000 | ) |
Gain from sale of discontinued operations, net of tax |
|
| (2,970,000 | ) |
|
| - |
|
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities of continuing operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 3,000 |
|
|
| - |
|
Stock-based compensation expense |
|
| 43,000 |
|
|
| 91,000 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Receivable from escrow account |
|
| (200,000 | ) |
|
| - |
|
Income tax receivable |
|
| 2,000 |
|
|
| 4,000 |
|
Prepaid expenses and other |
|
| (96,000 | ) |
|
| 64,000 |
|
Accounts payable |
|
| (41,000 | ) |
|
| 85,000 |
|
Accrued liabilities |
|
| 630,000 |
|
|
| (114,000 | ) |
Accrued income taxes |
|
| (12,000 | ) |
|
| (659,000 | ) |
Net cash used in operating activities of continuing operations |
|
| (2,325,000 | ) |
|
| (2,142,000 | ) |
Net cash provided by operating activities of discontinued operations |
|
| 1,735,000 |
|
|
| 12,530,000 |
|
Net cash (used in) provided by operating activities |
|
| (590,000 | ) |
|
| 10,388,000 |
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of business |
|
| 1,581,000 |
|
|
| - |
|
Purchases of property and equipment |
|
| (24,000 | ) |
|
| - |
|
Net cash provided by investing activities of continuing operations |
|
| 1,557,000 |
|
|
| - |
|
Net cash used in investing activities of discontinued operations |
|
| (24,000 | ) |
|
| (25,000 | ) |
Net cash provided by (used in) investing activities |
|
| 1,533,000 |
|
|
| (25,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net |
|
| 9,000 |
|
|
| 39,000 |
|
Repurchase of common stock, net |
|
| (437,000 | ) |
|
| - |
|
Net cash (used in) provided by financing activities |
|
| (428,000 | ) |
|
| 39,000 |
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents and restricted cash |
|
| 515,000 |
|
|
| 10,402,000 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash at beginning of period |
|
| 14,524,000 |
|
|
| 3,851,000 |
|
Cash and cash equivalents and restricted cash at end of period |
| $ | 15,039,000 |
|
| $ | 14,253,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures for cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes |
| $ | 79,000 |
|
| $ | 5,000 |
|
|
|
|
|
|
|
|
|
|
Non-cash financing activity: |
|
|
|
|
|
|
|
|
Purchase of property and equipment included in accounts payable |
| $ | 2,000 |
|
| $ | - |
|
Common stock issued for accrued liabilities |
| $ | 148,000 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements. |
|
|
|
|
|
|
|
|
6 |
Table of Contents |
Insignia Systems,Lendway, Inc. and Subsidiaries
Notes To Financial StatementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SummaryDescription of Significant Accounting Policies.Business and Basis of Presentation.
Description of Business..InsigniaLendway, Inc., a Delaware corporation (the “Company), is building a scalable non-bank lending business (the “Lending Business”) to purchase existing loans or originate and fund new loans, all of which will be secured by collateral. On August 4, 2023, the Company changed its name from “Insignia Systems, Inc. (the “Company”) is a leading provider” and reincorporated from Minnesota to Delaware. As part of the name change, the Company’s common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC.
As described in Note 2, on August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s legacy business of providing in-store advertising solutions to consumer-packaged goods (“CPG”) manufacturers,brands, retailers, shopper marketing agencies and brokerages. The Company operates inbrokerages (the “In-Store Marketing Business”) for a single reportable segment. The Company’s leadershipprice of $3.5 million, subject to escrows and employees have extensive industry knowledge with direct experience in both CPG manufacturers and retailers. The Company provides marketing solutions to CPG manufacturers spanning from some of the largest multinationals to new and emerging brands. The Company’s primary solutions are merchandising solutions, on-pack solutions and signage.a post-closing adjustment.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’s financial statements as of and for the year ended December 31, 20212022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 20222023 (the Form 10-K). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying condensed balance sheet as of December 31, 20212022 has been derived from the audited balance sheet as of December 31, 20212022 contained in the Form 10-K.
As discussedThe operations of the In-Store Marketing Business are presented as discontinued operations beginning with this Quarterly Report on Form 10-Q for the three months ended September 30, 2023, the period in Note 6,which the sale of the In-Store Marketing Business met the criteria as discontinued operations. All prior periods presented have been restated to present the In-Store Marketing Business as discontinued operations.
The condensed consolidated financial statements include the accounts of the Company, settledits subsidiary, Farmland Credit, Inc., a lawsuitMinnesota corporation (“FCI”), and FCI’s subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC.
2. Sale of In-Store Marketing Business and Presentation as Discontinued Operations.
On August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s In-Store Marketing Business for a price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement (the “Purchase Agreement”). The Company retained accounts receivable, as well as cash, cash equivalents and marketable securities. The cash consideration for the sale was subject to a post-closing adjustment depending on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs. Under the Purchase Agreement, $200,000 was escrowed for a twelve-month period for any future claims, as defined in the Purchase Agreement, by the Buyer against the Company.
7 |
Table of Contents |
Lendway, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The gain on sale of the In-Store Marketing Business before income taxes was determined as follows:
Sale price |
| $ | 3,500,000 |
|
Carrying value of assets sold, less liablities |
|
| (247,000 | ) |
Transaction costs not previously expensed |
|
| (209,000 | ) |
Gain on sale of In-Store Marketing Business |
| $ | 3,044,000 |
|
The Company incurred transaction-related severance and other separation benefits in connection with the termination of certain officers and employees of the discontinued operations of approximately $490,000, as well as retention award payouts totaling $343,000, of which $48,000 was included in continuing operations, and employee bonuses totaling $164,000, each of which was recorded a net pre-tax gain from litigation settlement of $12,000,000 in operationsas expense in the three months ended September 30, 2023.
The results of the In-Store Marketing Business have been presented as discontinued operations and the related assets and liabilities have been classified as related to discontinued operations for all periods presented.
The carrying amounts of major classes of assets and liabilities that were reclassified as related to discontinued operations on the Condensed Consolidated Balance Sheet were as follows:
|
| December 31, |
| |
|
| 2022 |
| |
Current Assets: |
|
|
| |
Accounts receivable |
| $ | 5,557,000 |
|
Inventories |
|
| 29,000 |
|
Prepaid production costs |
|
| 535,000 |
|
Other prepaid expense |
|
| 50,000 |
|
Current assets related to discontinued operations |
| $ | 6,171,000 |
|
|
|
|
|
|
Other Assets: |
|
|
|
|
Property and equipment, net |
| $ | 71,000 |
|
Operating lease right-of-use assets |
|
| 144,000 |
|
Non-current assets related to discontinued operations |
| $ | 215,000 |
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
Accounts payable |
| $ | 2,515,000 |
|
Sales tax |
|
| 717,000 |
|
Accrued liabilities |
|
| 1,003,000 |
|
Current portion of operating lease liabilities |
|
| 4,000 |
|
Deferred revenue |
|
| 2,427,000 |
|
Current liabilities related to discontinued operations |
| $ | 6,666,000 |
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
Operating lease liabilities |
| $ | 140,000 |
|
Non-current liabilities related to discontinued operations |
| $ | 140,000 |
|
8 |
Table of Contents |
Lendway, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Results of discontinued operations are summarized below:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30 |
|
| September 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net services revenues |
| $ | 1,976,000 |
|
| $ | 4,869,000 |
|
| $ | 21,018,000 |
|
| $ | 14,271,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
| 1,568,000 |
|
|
| 4,031,000 |
|
|
| 16,067,000 |
|
|
| 11,737,000 |
|
Gross Profit |
|
| 408,000 |
|
|
| 838,000 |
|
|
| 4,951,000 |
|
|
| 2,534,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
| 410,000 |
|
|
| 294,000 |
|
|
| 1,135,000 |
|
|
| 926,000 |
|
Marketing |
|
| 210,000 |
|
|
| 249,000 |
|
|
| 806,000 |
|
|
| 787,000 |
|
General and administrative |
|
| 142,000 |
|
|
| 268,000 |
|
|
| 642,000 |
|
|
| 647,000 |
|
Total Operating Expenses |
|
| 762,000 |
|
|
| 811,000 |
|
|
| 2,583,000 |
|
|
| 2,360,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from litigation settlement, net |
|
| — |
|
|
| 12,000,000 |
|
|
| — |
|
|
| 12,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
| (354,000 | ) |
|
| 12,027,000 |
|
|
| 2,368,000 |
|
|
| 12,174,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 21,000 |
|
|
| 17,000 |
|
|
| 54,000 |
|
|
| 45,000 |
|
(Loss) income from discontinued operations before income taxes |
|
| (333,000 | ) |
|
| 12,044,000 |
|
|
| 2,422,000 |
|
|
| 12,219,000 |
|
Income tax benefit |
|
| — |
|
|
| (191,000 | ) |
|
| — |
|
|
| (173,000 | ) |
(Loss) income from discontinued operations, net of tax |
| $ | (333,000 | ) |
| $ | 12,235,000 |
|
| $ | 2,422,000 |
|
| $ | 12,392,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from sale of discontinued operations before income taxes |
|
| 3,044,000 |
|
|
| — |
|
|
| 3,044,000 |
|
|
| — |
|
Income tax expense |
|
| 74,000 |
|
|
| — |
|
|
| 74,000 |
|
|
| — |
|
Gain from sale of discontinued operations, net of tax |
| $ | 2,970,000 |
|
| $ | — |
|
| $ | 2,970,000 |
|
| $ | — |
|
The accounting policies for the discontinued In-Store Marketing Business, including for revenue recognition, are disclosed in the notes to financial statements included in the Company’s Annual Report on Form 10-K.
In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”), alleging violations of federal and state antitrust and tort laws by News America. On July 1, 2022, the Company entered into a $20 million settlement agreement with News America. The agreement resulted in net proceeds before income tax of $12,000,000 for the Company, which was recorded as a gain on litigation settlement in the discontinued operations of the In-Store Marketing Business during the three months ended September 30, 2022.
For the three and nine months ended September 30, 2023, the Company recorded income tax expense on discontinued operations of $74,000 and $74,000, respectively. For the three and nine months ended September 30, 2022, the Company recorded income tax benefit from discontinued operations of $191,000 and $173,000 respectively. The income tax benefit for 2022 included a decrease of approximately $678,000 in unrecognized tax benefits related to state exposure in the third quarter of 2022, which reduced accrued income taxes and increased the current tax benefit.
9 |
Table of Contents |
Lendway, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Summary of Significant Accounting Policies.
Cash and Cash Equivalents and Restricted Cash. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows:
|
| September 30, |
| December 31, |
|
| September 30, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash and cash equivalents |
| $ | 14,168,000 |
| $ | 3,766,000 |
|
| $ | 14,954,000 |
| $ | 14,439,000 |
| ||
Restricted cash |
|
| 85,000 |
|
|
| 85,000 |
|
|
| 85,000 |
|
|
| 85,000 |
|
Total cash, cash equivalents and restricted cash |
| $ | 14,253,000 |
|
| $ | 3,851,000 |
|
| $ | 15,039,000 |
|
| $ | 14,524,000 |
|
Included inSubsequent to September 30, 2023 the restriction on the cash and cash equivalents iswas released back to the Company, as it was related to a U.S. Treasury Bill with a carrying value of $11,100,000.
Inventories. Inventories are primarily comprised of sign cards and hardware. Inventory is valued atlease that transferred to the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method.
Property and Equipment. Property and equipment consistedBuyer of the following:
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Property and Equipment: |
|
|
|
|
|
| ||
Production tooling, machinery and equipment |
| $ | 27,000 |
|
| $ | 27,000 |
|
Office furniture and fixtures |
|
| 95,000 |
|
|
| 95,000 |
|
Computer equipment and software |
|
| 758,000 |
|
|
| 753,000 |
|
Leasehold improvements |
|
| 19,000 |
|
|
| 19,000 |
|
Construction in-progress |
|
| 15,000 |
|
|
| 4,000 |
|
|
|
| 914,000 |
|
|
| 898,000 |
|
Accumulated depreciation and amortization |
|
| (830,000 | ) |
|
| (785,000 | ) |
Net Property and Equipment |
| $ | 84,000 |
|
| $ | 113,000 |
|
Depreciation expense was approximately $15,000 and $46,000 in the three and nine months ended September 30, 2022, respectively, and was $14,000 and $46,000 in the three and nine months ended September 30, 2021, respectively.In-Store Marketing Business.
Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock as of the date of the grant. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
During the nine monthsnine-month periods ended September 30, 20222023 and 2021,2022 no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors in August 2022 and in June 2021.2022.
In August 2022, non-employee members of the Board of Directors received restricted stock grants totaling 6,248 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $9.60 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $60,000. The shares are scheduled to vest the day immediately preceding the date of the next annual shareholder meeting.vested on July 26, 2023.
In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Equity Incentive Plan. The shares underlying the awards were assigned a value of $8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $45,000. The shares vested on June 1, 2022.
The Company estimated the fair value of stock-based awards granted during the three and nine months ended September 30, 2023, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 95.2%, dividend yield of 0% and risk-free interest rate of 4.7%. Due to the sale of the In-Store Marketing Business, the plan year for the Company’s employee stock purchase plan was amended to end on July 31, 2023. At July 31, 2023 participants purchased 338 shares.
During the three months ended September 30, 2023, the Company issued 22,382 shares of common stock in settlement of $148,000 of total deferred fees due to two non-employee director’s departure from the Board of Directors.
Total stock-based compensation expense recorded for the three and nine months ended September 30, 20222023 was $32,000$7,000 and $91,000,$43,000, respectively, and for the three and nine months ended September 30, 20212022 was $56,000$32,000 and $198,000,$91,000, respectively.
Net (Loss) Income (Loss) per Share. Basic net (loss) income (loss) per share is computed by dividing net (loss) income (loss) by the weighted average shares outstanding and excludes any potential dilutive effects of stock options and restricted stock units and awards. Diluted net (loss) income (loss) per share gives effect to all dilutive potential common shares outstanding during the period.
Options to purchase approximately 14,086In determining diluted net income (loss) per share, whether net income from continuing operations is positive or negative controls whether dilutive shares of common stock with a weighted average exercise price of $11.91 and $11.98, respectively, were outstanding at September 30, 2022 and were notare included in the computation of common stock equivalents fordetermination. For all periods presented, net income from continuing operations is negative, a net loss. Accordingly, since including dilutive shares would dilute the three and nine months ended September 30, 2022 because their exercise prices were higher than the average fair market valueloss from continuing operations, no dilutive shares are included in any of the common stock during the reporting period.
Due to the net loss incurred during the three and nine months ended September 31, 2021 all outstanding stock options were anti-dilutive for those periods. As of September 30, 2021 the Company had options to purchase 21,741 shares of common stock and 32,410 restricted stock units, each representing the contingent right to receive oneper share of common stock, outstanding.calculations.
Weighted average common shares outstanding:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30 |
|
| September 30 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Denominator for basic net income (loss) per share - weighted average shares |
|
| 1,795,000 |
|
|
| 1,766,000 |
|
|
| 1,790,000 |
|
|
| 1,757,000 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
| 1,000 |
|
|
|
|
|
|
| 6,000 |
|
|
|
|
|
Denominator for diluted net income (loss) per share - weighted average shares |
|
| 1,796,000 |
|
|
| 1,766,000 |
|
|
| 1,796,000 |
|
|
| 1,757,000 |
|
2. Revenue Recognition. Under Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“Topic 606”), revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “Performance Obligations.”
Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting.
The Company includes shipping and handling fees in revenues. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of services.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The following is a description of the Company’s performance obligations included in its primary revenue streams and the timing or method of revenue recognition for each:
Merchandising, On-Pack, and Non-POPS Signage Solutions. The Company supplies CPG manufacturers with retailer approved promotional services, such as merchandising, on-pack, and signage solutions. These services are more customized than POPS, consisting of variable durations and variable specifications. Due to the variable nature of these services, revenue recognition is a mix of over-time and point-in-time recognition.
POPS Signage Solution Services. The Company provides a service of displaying promotional signs in close proximity to the CPG manufacturer’s product in participating stores, which the Company maintains in two-to-four-week cycle increments.
Each of the individual activities under the Company’s services, including production activities, are inputs to an integrated sign display service. Customers receive and consume the benefits from the promotional displays over the duration of the contracted display cycle. Additionally, the display of the signs does not have an alternative use to the Company and the Company has an enforceable right to payment for services performed to date. As a result, the Company recognizes the transaction price for service performance obligations as revenue over time. Given the nature of the Company’s performance obligations is to provide a display service over the duration of a specified period or periods, the Company recognizes revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of its sign solutions.
Table of Contents |
Disaggregation of RevenueLendway, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
InDue to the following table, revenue is disaggregated by major revenue stream and timing of revenue recognition.
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| Services Revenues |
|
| Services Revenues |
|
| Services Revenues |
|
| Services Revenues |
| ||||
Timing of revenue recognition: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Services transferred over time |
| $ | 398,000 |
|
| $ | 1,482,000 |
|
| $ | 1,355,000 |
|
| $ | 5,366,000 |
|
Services transferred at a point in time |
|
| 4,471,000 |
|
|
| 2,011,000 |
|
|
| 12,916,000 |
|
|
| 9,609,000 |
|
Total |
| $ | 4,869,000 |
|
| $ | 3,493,000 |
|
| $ | 14,271,000 |
|
| $ | 14,975,000 |
|
Contract Costs
Sales commissions that are paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have beennet loss from continuing operations incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company is applying the practical expedient in Accounting Standards Codification 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less. These costs are included in selling expenses.
Deferred Revenue
Deferred revenues represent amounts collected from customers in advance of the satisfaction of performance obligations. Significant changes in deferred revenue during the period are as follows:
Balance at December 31, 2021 |
| $ | 842,000 |
|
Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied |
|
| (478,000 | ) |
Cash received in advance and not recognized as revenue |
|
| 555,000 |
|
Balance at September 30, 2022 |
| $ | 919,000 |
|
Transaction Price Allocated to Remaining Performance Obligations
The Company applies the practical expedient in paragraph 606-10-50-14three and does not disclose information about remaining performance obligations that have original expected durations of one year or less, which reflect the majority of its performance obligations. This practical expedient is being applied to arrangementsnine months ended September 30, 2023 and 2022, all outstanding stock awards were considered anti-dilutive for certain incomplete services and unshipped custom signage materials. Among our contracts with an expected duration of greater than one year, we anticipate that revenue of $28,000 and $57,000 related to performance obligations that are unsatisfied (or partially unsatisfied) as ofthose periods. At September 30, 2022 will be recognized during the remainder of fiscal 2022 and 2023 respectively. options to purchase 14,086 shares of common stock with a weighted average exercise price of $14.17, were outstanding.
3. Leases. As of September 30, 2022 the Company leases space under two non-cancelable operating leases for its corporate headquarters and for warehouse space. Both leases have escalating lease payment terms but neither contains a contingent rent provision. The Company also had a lease for additional office space under an operating lease that expired August 31, 2021. The leases for both the Company’s corporate headquarters and its warehouse include both lease and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. The headquarters lease required the Company to provide a letter of credit, which is supported by $85,000 reflected as restricted cash on the balance sheet.
The Company’s leases include options to renew. The exercise of lease renewal options is at the Company’s sole discretion. Therefore, the renewals to extend the lease terms are not included in the Company’s right of use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.
The Company used its incremental borrowing rate of approximately 4.8% in determining the present value of the lease payments based on the information available at the lease commencement date.
The cost components of the Company’s operating leases were as follows:
|
| Three months ended September 30, 2022 |
|
| Nine months ended September 30, 2022 |
| ||||||||||||||||||
|
| Corporate |
|
|
|
|
| Operating |
|
| Corporate |
|
|
|
|
| Operating |
| ||||||
|
| Headquarters |
|
| Warehouse |
|
| Leases |
|
| Headquarters |
|
| Warehouse |
|
| Leases |
| ||||||
Operating lease cost |
| $ | 17,000 |
|
| $ | 4,000 |
|
| $ | 21,000 |
|
| $ | 50,000 |
|
| $ | 13,000 |
|
| $ | 63,000 |
|
Variable lease cost |
|
| 10,000 |
|
|
| 3,000 |
|
| $ | 13,000 |
|
|
| 30,000 |
|
|
| 9,000 |
|
|
| 39,000 |
|
Total |
| $ | 27,000 |
|
| $ | 7,000 |
|
| $ | 34,000 |
|
| $ | 80,000 |
|
| $ | 22,000 |
|
| $ | 102,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three months ended September 30, 2021 |
| |||||||||||||
|
| Corporate |
|
| Additional |
|
|
|
|
| Operating |
| ||||
|
| Headquarters |
|
| Office Space |
|
| Warehouse |
|
| Leases |
| ||||
Operating lease cost |
| $ | 11,000 |
|
| $ | - |
|
| $ | 4,000 |
|
| $ | 15,000 |
|
Variable lease cost |
|
| 7,000 |
|
|
| - |
|
|
| 4,000 |
|
|
| 11,000 |
|
Short-term lease cost |
|
| - |
|
|
| 7,000 |
|
|
| - |
|
|
| 7,000 |
|
Total |
| $ | 18,000 |
|
| $ | 7,000 |
|
| $ | 8,000 |
|
| $ | 33,000 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Nine months ended September 30, 2021 |
| |||||||||||||||||
|
| Prior Corporate |
|
| Corporate |
|
| Additional |
|
|
|
|
| Operating |
| |||||
|
| Headquarters |
|
| Headquarters |
|
| Office Space |
|
| Warehouse |
|
| Leases |
| |||||
Operating lease cost |
| $ | 38,000 |
|
| $ | 11,000 |
|
| $ | - |
|
| $ | 9,000 |
|
| $ | 58,000 |
|
Variable lease cost |
|
| 24,000 |
|
|
| 7,000 |
|
|
| - |
|
|
| 9,000 |
|
|
| 40,000 |
|
Short-term lease cost |
|
| - |
|
|
| - |
|
|
| 28,000 |
|
|
| - |
|
|
| 28,000 |
|
Total |
| $ | 62,000 |
|
| $ | 18,000 |
|
| $ | 28,000 |
|
| $ | 18,000 |
|
| $ | 126,000 |
|
Variable lease costs consist primarily of taxes, insurance, andWeighted average common area or other maintenance costs which are paid based on actual costs incurred by the lessor.
Maturities of the Company’s lease liabilities for is corporate headquarters and its warehouse operating leases are as follows as of September 30, 2022:
Maturity of Lease Liabilities |
| Leases |
| |
2022 |
| $ | 21,000 |
|
2023 |
|
| 72,000 |
|
2024 |
|
| 40,000 |
|
Total lease payments |
|
| 133,000 |
|
Less: Interest |
|
| (6,000 | ) |
Present value of lease liabilities |
| $ | 127,000 |
|
The remaining lease terms as of September 30, 2022 for the Company’s corporate headquarters and its warehouse leases were 1.8 years and 0.5 years, respectively. The discount rate for both leases is 4.8%. The cash outflow for operating leasesshares outstanding for the three and nine months ended September 30, 2023 and 2022 were as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30 |
|
| September 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Denominator for basic net income (loss) per share - weighted average shares |
|
| 1,785,000 |
|
|
| 1,795,000 |
|
|
| 1,793,000 |
|
|
| 1,790,000 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Denominator for diluted net income (loss) per share - weighted average shares |
|
| 1,785,000 |
|
|
| 1,795,000 |
|
|
| 1,793,000 |
|
|
| 1,790,000 |
|
Restructuring. In connection with the change in the Company’s strategy to the Lending Business, the Company’s prior CEO, Kristine A. Glancy, departed on August 31, 2023. Included in general and administrative expense of continuing operations is expense of $926,000 relating to change of control and other severance related payments and benefits to Ms. Glancy. As of September 30, 2023, $650,000 remains to be paid to Ms. Glancy and is included in accrued compensation.
4. Leases.
At September 30, 2023, the Company has a month-to-month operating lease with a related party with monthly payments of $375. As part of the sale of the in-store marketing business, the headquarters lease was $21,000assigned to the Buyer as a part of the sale of the In-Store Marketing Business, and $62,000, respectively.the other significant lease was terminated. The cash outflow foramounts included in “Other” below relate to an office lease that was terminated effective September 30, 2023.
The cost components in continuing operations of the Company’s operating leases were as follows for the three and nine month periods ended September 30, 2023 and 2022:
|
| Three months ended September 30 |
|
| Nine months ended September 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Related party lease |
| $ | 1,000 |
|
| $ | - |
|
| $ | 2,000 |
|
| $ | - |
|
Other |
|
| 5,000 |
|
|
| 3,000 |
|
|
| 13,000 |
|
|
| 11,000 |
|
Total |
| $ | 6,000 |
|
| $ | 3,000 |
|
| $ | 15,000 |
|
| $ | 11,000 |
|
5. Income Taxes.
For the three and nine months ended September 30, 2021 was $15,0002023, the Company recorded income tax (benefit) of $(11,000) and $76,000,$(4,000), respectively, or 0.6% and 0.1% of loss from continuing operations before taxes, respectively.
4. Income Taxes. For the three and nine months ended September 30, 2022, the Company recorded income tax benefitexpense of $190,000$1,000 and $168,000,$5,000 respectively, or (1.6)(0.2)% and (1.6)(0.3)% of income before taxes, respectively. For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $9,000 and $32,000, or 1.0% and 1.3% of loss from continuing operations before taxes, respectively. The income tax expense or benefit(benefit) for the three and nine months ended September 30, 20222023 and 20212022 is comprised of federal and state taxes. The primary differences between the Company’s September 30, 2022 and 2021 effective tax rates and the statutory federal rate are nondeductible stock-based compensation, nondeductible penalties and for 2021 increases in the Company’s valuation allowance against its deferred tax assets and for 2022 decreases in the Company’s valuation allowance against its deferred tax assets and decreases in the Company’s reserve for unrecognized tax benefits.
Nine months ended September 30, |
| 2022 |
|
| 2021 |
| ||
Federal statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
Stock-based awards |
|
| 0.1 |
|
|
| (0.9 | ) |
State taxes |
|
| 3.6 |
|
|
| 3.6 |
|
Impact of uncertain tax positions |
|
| (6.2 | ) |
|
| (1.1 | ) |
Valuation allowance |
|
| (20.0 | ) |
|
| (34.3 | ) |
PPP forgiveness |
|
| - |
|
|
| 10.5 |
|
Other |
|
| (0.1 | ) |
|
| (0.1 | ) |
|
|
|
|
|
|
|
|
|
Effective federal income tax rate |
|
| (1.6 | )% |
|
| (1.3 | )% |
The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). The actual tax expense attributable to from continuing operations income before taxes differs from the expected tax expense computed by applying the U.S. federal corporate income tax rate of 21% as follows:
11 |
Table of Contents |
Lendway, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, |
| 2023 |
|
| 2022 |
| ||
Federal statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
Stock-based awards |
|
| 0.0 |
|
|
| (0.6 | ) |
State taxes |
|
| 3.5 |
|
|
| 3.6 |
|
Impact of uncertain tax positions |
|
| 0.5 |
|
|
| 0.0 |
|
Valuation allowance |
|
| (24.5 | ) |
|
| (24.6 | ) |
Other |
|
| (0.4 | ) |
|
| 0.3 |
|
|
|
|
|
|
|
|
|
|
Effective federal income tax rate |
|
| 0.1 | % |
|
| (0.3 | )% |
Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which we operate,it operates, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.
AtAs of September 30, 2022,2023, and December 31, 2021,2022, the Company had unrecognized tax benefits totaling $52,000$41,000 and $711,000,$53,000, 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 $52,000.$41,000. The Company recorded a decrease of approximately $679,000$16,000 in unrecognized tax benefits related to state income tax exposure in the third quarter of 2022,2023 which reduced accrued income taxes and increased income tax benefit. The Company has determined it is no longer more likely than not that the Company will realize the tax expense.
At December 31, 2021,2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $9,700,000.$2,900,000. As of September 30, 20222023, the Company estimates remaining Federal NOL carryforwards to be approximately $2,000,000. The federal$1,390,000. Federal NOL utilization wasis limited to 80% of estimated taxable income. The estimated NOL carry-forwardcarry forward will be adjusted at year end for fourth quarteractual results.
5. Concentrations. During the nine months ended September 30, 2022, three customers accounted for 19%, 12% and 11% respectively, of the Company’s total net sales. During the nine months ended September 30, 2021, two customers accounted for 16% and 10% respectively, of the Company’s total net sales. At September 30, 2022, two customers represented 20% and 12% respectively, of the Company’s total accounts receivable. At December 31, 2021, two customers represented 25% and 19% of the Company’s total accounts receivable.
6. Legal Proceedings.Stock Repurchase Plan. In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”) in the U.S. District Court in Minnesota, alleging violations of federal and state antitrust and tort laws by News America.
On July 1, 2022,August 28, 2023, the Company entered into a $20 million settlement agreement with News America. The agreement memorializesCompany’s Board of Directors authorized the amicable settlementrepurchase of up to 400,000 shares of the Company’s outstanding lawsuit against News America.common stock. The agreement resultedplan allows the purchases to be made in net proceeds before income tax of $12,000,000 forthe open market or in privately negotiated transactions. The plan does not obligate the Company which was recorded as a gain on litigation settlement in operations into repurchase any particular number of shares; and may be suspended anytime at the Company’s discretion.
For the three months ended September 30, 2022.2023 the Company repurchased 75,345 shares for $437,000.
7. Loan.Legal Proceedings. In April 2020, the Company entered into a promissory note (the “Note”) with Alerus Financial, N.A. The Note evidenced a loan to the Company in the amount of $1,054,000 pursuant to the Paycheck Protection Program (the “PPP”) of the CARES Act administered by the U.S. Small Business Administration (the “SBA”).
In accordance with the requirements of the CARES Act, the Company used the proceeds from the loan exclusively for qualified expenses under the PPP, including payroll costs, rent and utility costs. Interest was accrued on the outstanding balance of the Note at a rate of 1.00% per annum. The Note was scheduled to mature on April 22, 2022 and required 18 equal monthly payments of principal and interest.
The Company is subject to various legal matters in the normal course of business. The outcome of these matters is not expected to have a material effect on the Company’s application for forgivenessfinancial position or results of the amount due under the Note, including accrued interest, was approved by the SBA on January 29, 2021. Accordingly, for the year ended December 31, 2021 the debt of $1,054,000, plus accrued interest of $8,000 was eliminated with a gain on debt extinguishment included in other income.operations.
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Company’s financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q (“10-Q”) and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, our Current Reports on Form 8-K and our other SEC filings.
Company Overview
Insignia Systems, Inc. (“Insignia,” “we,” “us,” “our” and the “Company”) was incorporated in Minnesota in 1990. We are building a leading providerscalable non-bank lending business (our “Lending Business”) to purchase existing loans or originate and fund new loans, all of in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (“clients”which will be secured by collateral (individually or collectively, the “Secured Loans”). In April 2023, we announced the launch of our Lending Business, through the hiring of a Senior Vice President of Lending with over 20 years of experience in credit and lending.
Initially, we intend to focus on loans secured by real estate, primarily for agricultural purposes. We believeexpect to expand our product offerings over time as we identify needs and opportunities in the marketplace for loans generally. Our plan, therefore, is to build a portfolio of well-secured loans, with a portion of the credit risk being participated to third parties in most cases, to maintain a low net loss experience and to charge fully compensatory rates and fees.
The primary sources of revenue from our Lending Business are expected to consist of:
· | interest income earned on assets on the balance sheet, including but not limited to Secured Loans, net of related funding costs and interest payments, and | |
· | fee income generated from origination and servicing of Secured Loans. |
We are building our strategy and long-term growth initiatives upon these fundamental factors:
· | streamlined systems and processes to support the growth of our core business through connecting customers with competitive funding; | |
· | establishment of market presence through direct marketing, purchase of existing loan portfolios, and/or third-party origination agreements; | |
· | development of long-term customer relationships; | |
· | creation of customized niche products and solutions to support identified customer needs and opportunities in the marketplace; | |
· | effective capital and funding structures to maximize returns; | |
· | development of mutually beneficial funding and origination partner relationships to expand Company loan volumes and margins over time; and | |
· | evaluation of strategic acquisition(s) that align with our initiatives. |
We face competition from other entities that originate, purchase, securitize, or provide financing for Secured Loans. These entities include commercial and investment banks, insurance companies, Farm Credit System institutions, and financial funds.
We plan to compete by controlling overhead costs and by sourcing competitive cost of funds to blend with equity capital to provide flexible financing options and products and services are attractivedesigned to meet the varied needs of our clients becausecustomers.
The relative competitiveness of our loan rates and our ability to navigate the complex retail landscape, to customize our solutions down to store level, to execute with excellence and the results our solutions deliver. Our leadership and employees have extensive industry knowledge, including direct experience through former positions at consumer-packaged goods (“CPG”) manufacturers and retailers. We provide marketing solutions to brands spanning from some of the largest multinationals to new and emerging brands.grow loan volume are affected by many factors, including:
| · | demand for lending products we offer; |
· | available capital; and | |
· | liquidity and cost of funds from third-party funding sources. |
Up until 2020, our primary solution had been in-store signage, specifically Point-Of-Purchase Services (POPS®). The Insignia POPS solution isDuring the third quarter, the Company increased its marketing activity and met with a national, account-specific, shelf-edge advertisingnumber of prospects. We anticipate minimal revenue and promotion tactic. Primarily as a result of competitive pressures and also due to COVID-19, our in-store signage business has declined and become less of a focus in our growth. Beginning in 2018 we began developing and offering an expanded portfolio of solutions including on-pack, merchandising and digital solutions in addition to our core business. Our expanded portfolio allows us to meet the needs of brands, retailers and their agents as their business strategies evolve behind an ever-changing retail landscape. Over the course of 2021 based on client feedback, business results and expanded team capabilities our primary focus is now on in-store solutions, resulting in our decision to exit digital solutions in addition to right-sizing our in-store signage portfolio. With our diversification of business, we now recognized over 90% of our revenuelosses from these recently developed solutions in the nine months ended September 30, 2022.
Over the last two years we have significantly reduced operating costs and retailer commitments. In the last half of 2020 we outsourced most of our printing and IT operations. In 2021 we relocated our headquarters andcontinuing operations both to smaller, more efficient leased spaces, and also restructured operations in December 2021. These changes contributed to reduced expenses in the nine months ended September 30, 2022 and are expected to continue to drive savings for the remainder of 2022 compared to 2021.2023.
Table of Contents |
On July 1, 2022, the Company entered into a $20 million settlement agreement with News America. The agreement memorializes the amicable settlement of the Company’s outstanding lawsuit against News America. The agreement resulted in net proceeds before income tax of $12,000,000 for the Company, which was recorded as a net pretax gain from litigation settlement in operations in the three months ended September 30, 2022.
We are also continuingcontinue to explore other strategic options to maximize shareholderstockholder value. Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, start-up of new business or other strategic transaction.initiatives. There can be no assurance that this process will result in any transaction.transaction or other initiatives.
Recent Developments
On August 4, 2023 we changed our name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware. As part of the name change, our common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC.
On August 3, 2023, we sold certain assets and certain liabilities relating to our former business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “In-Store Marketing Business”) for a sale price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement dated May 24, 2023 (the “Purchase Agreement”). The Company retained accounts receivable, as well as all cash, cash equivalents and marketable securities. The cash consideration for the sale was subject to a post-closing adjustment that depended on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs. Under the Purchase Agreement, $200,000 was escrowed for a twelve month period for any future claims, as defined in the Purchase Agreement by the Buyer against the Company.
We also incurred transaction-related severance and other separation benefits in connection with the termination of certain of our officers and employees of approximately $1,416,000, $490,000 of which was attributed to the sale of the In-Store Marketing Business, as well as retention award payouts totaling $343,000 and employee bonuses totaling $164,000, each of which were recorded as expense in the three months ended September 30, 2023. The sum of transaction-related severance, retention awards and bonuses was $1,923,000, of which $974,000 was recorded in continuing operations and $949,000 was recorded in discontinued operations in the three months ended September 30,2023.
Business Overview
Summary of Financial Results
For the quarter ended September 30, 2022, the Company generated net sales of $4,869,000, as compared with revenues of $3,493,000 for the quarter ended September 30, 2021. For the nine months ended September 30, 2022, the Company generated revenues of $14,271,000, as compared with revenues of $14,975,000 in the nine months ended September 30, 2021. Income before taxes for the quarter ended September 30, 2022 was $11,611,000, which included $12,000,000 from the net gain on litigation settlement, as compared to net loss before taxes of $912,000 for the quarter ended September 30, 2021. Income before tax for the nine months ended September 30, 2022 was $10,611,000, which included $12,000,000 from the net gain on litigation settlement, as compared to net loss before taxes of $2,520,000 for the nine months ended September 30, 2021. Revenue from our non-POPS solutions increased significantly for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, partially offset by continued declines in our signage business due to competitive pressures. For the nine months ended September 30, 2022 net sales have declined $704,000, primarily due to continued declines in our signage business, partially offset by increases in non-POPS solutions revenue. During the first nine months of 2021, litigation expenses increased significantly compared to prior quarters. Litigation expenses for 2022 decreased in comparison to 2021 culminating with the litigation settlement on July 1, 2022. We also recognized a gain of $1,062,000 on the forgiveness of our Paycheck Protection Program (“PPP”) loan during the first quarter of 2021. Income tax benefit for the three and nine months ended September 30, 2022 included a benefit from a reduction in unrecognized tax benefits of $679,000, partially offset by income tax on income before tax.2023, continuing operations, the Lending Business, had no revenue.
During the nine months ended September 30, 2022,2023, cash and cash equivalents and restricted cash increased $10,402,000by $515,000 from $3,851,000$14,524,000 at December 31, 2021,2022, to $14,253,000$15,039,000 at September 30, 2022, due to2023. The increase was primarily driven by collections of accounts receivable from discontinuing the In-Store Marketing Business, as well as proceeds from the litigation settlement. The Companysale of the In-Store Marketing Business. We had no debt other than its lease obligations at September 30, 2022.2023. Working capital increased $10,284,000$2,513,000 from $3,716,000$13,379,000 at December 31, 20212022 to $14,000,000$15,892,000 at September 30, 2022.2023.
Table of Contents |
Results of Operations
The following table sets forth, for the periods indicated, certain items from our continuing operations in our Condensed Statementscondensed consolidated statements of Operations as aoperations and the percentage of total net sales.change year-over-year. The Company had no revenue from continuing operations.
|
| Three Months Ended | Nine Months Ended |
| ||||||||||||
|
| September 30 | September 30 |
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of sales |
|
| 82.8 |
|
|
| 84.4 |
|
|
| 82.2 |
|
|
| 82.1 |
|
Gross profit |
|
| 17.2 |
|
|
| 15.6 |
|
|
| 17.8 |
|
|
| 17.9 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
| 6.0 |
|
|
| 12.2 |
|
|
| 6.5 |
|
|
| 9.4 |
|
Marketing |
|
| 5.1 |
|
|
| 7.6 |
|
|
| 5.5 |
|
|
| 5.1 |
|
General and administrative |
|
| 15.5 |
|
|
| 22.3 |
|
|
| 16.2 |
|
|
| 27.0 |
|
Total operating expenses |
|
| 26.6 |
|
| 42.1 |
|
|
| 28.2 |
|
| 41.5 |
| ||
Gain from litigation settlement, net |
|
| 246.4 |
|
|
| — |
|
|
| 84.1 |
|
|
| — |
|
Operating income (loss) |
|
| 237.0 |
|
|
| (26.5 | ) |
|
| 73.7 |
|
|
| (23.6 | ) |
Other income |
|
| 1.5 |
|
|
| 0.4 |
|
|
| 0.7 |
|
|
| 6.8 |
|
Income (loss) before taxes |
|
| 238.5 |
|
|
| (26.1 | ) |
|
| 74.4 |
|
|
| (16.8 | ) |
Income tax expense (benefit) |
|
| (3.9 | ) |
|
| 0.3 |
|
|
| (1.1 | ) |
|
| 0.2 |
|
Net income (loss) |
|
| 242.4 | % |
|
| (26.4 | )% |
|
| 75.5 | % |
|
| (17.0 | )% |
|
| Three Months Ended September 30 |
|
| Increase (decrease) from 2022 to 2023 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| Percent |
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| $ | 69,000 |
|
| $ | - |
|
| $ | 69,000 |
|
|
| 100.0 | % |
General and administrative |
|
| 1,564,000 |
|
|
| 488,000 |
|
|
| 1,076,000 |
|
|
| 220.5 | % |
Total operating expenses |
|
| 1,633,000 |
|
|
| 488,000 |
|
|
| 1,145,000 |
|
|
| 234.6 | % |
Operating loss |
|
| (1,633,000 | ) |
|
| (488,000 | ) |
|
| (1,145,000 | ) |
|
| 234.6 | % |
Interest income |
|
| 111,000 |
|
|
| 55,000 |
|
|
| 56,000 |
|
|
| 101.8 | % |
Loss from continuing operations before income taxes |
|
| (1,522,000 | ) |
|
| (433,000 | ) |
|
| (1,089,000 | ) |
|
| 251.5 | % |
Income tax (benefit) expense |
|
| (11,000 | ) |
|
| 1,000 |
|
|
| (12,000 | ) |
|
| (1200.0 | )% |
Net Loss from continuing operations |
| $ | (1,511,000 | ) |
| $ | (434,000 | ) |
| $ | (1,077,000 | ) |
|
| 248.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30 |
|
| Increase (decrease) from 2022 to 2023 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| Amount |
|
| Percent |
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
| $ | 134,000 |
|
| $ | - |
|
| $ | 134,000 |
|
|
| 100.0 | % |
General and administrative |
|
| 2,849,000 |
|
|
| 1,663,000 |
|
|
| 1,186,000 |
|
|
| 71.3 | % |
Total operating expenses |
|
| 2,983,000 |
|
|
| 1,663,000 |
|
|
| 1,320,000 |
|
|
| 79.4 | % |
Operating loss |
|
| (2,983,000 | ) |
|
| (1,663,000 | ) |
|
| (1,320,000 | ) |
|
| 79.4 | % |
Interest income |
|
| 325,000 |
|
|
| 55,000 |
|
|
| 270,000 |
|
|
| 490.9 | % |
Loss from continuing operations before income taxes |
|
| (2,658,000 | ) |
|
| (1,608,000 | ) |
|
| (1,050,000 | ) |
|
| 65.3 | % |
Income tax (benefit) expense |
|
| (4,000 | ) |
|
| 5,000 |
|
|
| (9,000 | ) |
|
| (180.0 | )% |
Net Loss from continuing operations |
| $ | (2,654,000 | ) |
| $ | (1,613,000 | ) |
| $ | (1,041,000 | ) |
|
| 64.5 | % |
Three and Nine monthsMonths Ended September 30, 20222023 Compared to Three and Nine monthsMonths Ended September 30, 20212022
Operating Expenses
Net Sales.Sales and Marketing. Net salesSales and marketing expenses for the three months ended September 30, 2022 increased 39.4% to $4,869,000 compared to $3,493,000 for the three months ended September 30, 2021. Net sales for the nine months ended September 30, 2022 decreased 4.7% to $14,271,000 compared to $14,975,000 for the nine months ended September 30, 2021. For the three months ended September 30, 2022 non-POPS revenue increased 100.7%, partially offset by a 81.4% decrease in POPS solutions revenue. For the nine months ended September 30, 2022, non-POPS revenue has increased 22.0%, partially offset by a 82.3% decrease in POPS solutions revenue. The increase in non-POPS revenue is due to both new client acquisition as well as repeat business from existing clients. Due to sales cycles within the retailers that our non-POPS solutions execute we anticipate seasonality in sales, with those sales being relatively stronger in the first quarter of the year. Our display business generally consists of larger contracts versus our historical signage business. As a result, our revenue may be prone to variances on a year over year basis. Competitive pressures, including the expiration in April 2021 of our 10-year selling agreement with News America have resulted in decreased POPS solutions revenue for three and nine months ended September 30, 2022 versus the three and nine months ended September 30, 2021. We expect POPS revenue will continue to decline in 2022 in comparison to 20212023 were $69,000 and $134,000, consisting of a portion of our CEO’s compensation, as we have reduced the number of stores in our network.
Gross Profit.Gross profitwell as website and public relations costs. There was no comparable expense for the three months ended September 30, 2022 increased 53.8% to $838,000 compared to $545,000 for the three months ended September 30, 2021. The increase in gross profit was primarily due to the increase in net sales. Gross profit as a percentage of total net sales increased to 17.2% for the three months ended September 30, 2022 compared to 15.6% for the three months ended September 30, 2021. The increase was primarily due to the impact fixed costs have on gross profit percentage when sales increase, partially offset by the mix of net sales as our non-POPS solutions typically have lower margins.
Gross profit for theand nine months ended September 30, 2022 decreased 5.5% to $2,534,000 compared to $2,682,000 for the nine months ended September 30, 2021. The decrease in gross profit was primarily due to the decline in net sales. Gross profit as a percentage of total net sales decreased to 17.8% for the nine months ended September 30, 2022 compared to 17.9% for the nine months ended September 30, 2021.
Operating Expenses
Selling. Selling expenses for the three months ended September 30, 2022 decreased 30.8% to $294,000 compared to $425,000 for the three months ended September 30, 2021. Selling expenses for the nine months ended September 30, 2022 decreased 34.1% to $926,000 compared to $1,406,000 for the nine months ended September 30, 2021. The decreases for both periods were primarily due to decreased staff and staff related expenses.
Selling expenses as a percentage of total net sales decreased to 6.0% for the three months ended September 30, 2022 compared to 12.2% for the three months ended September 30, 2021. The decrease was primarily due to decreased staff and staff related expenses, in addition to increased sales. Selling expenses as a percentage of net sales decreased to 6.5% for the nine months ended September 30, 2022 compared to 9.4% for the nine months ended September 30, 2021. The decreases were primarily due to decreased staff and staff related expenses, partially offset by decreased sales.
Marketing. Marketing expenses for the three months ended September 30, 2022 decreased 6.4% to $249,000 compared to $266,000 for the three months ended September 30, 2021. Marketing expense for the nine months ended September 30, 2022 increased 3.4% to $787,000 compared to $761,000 for the nine months ended September 30, 2021.
Marketing expenses as a percentage of total net sales decreased to 5.1% for the three months ended September 30, 2022 compared to 7.6% for the three months ended September 30, 2021. The decrease was due to increased sales. Marketing expenses as a percentage of net sales increased to 5.5% for the nine months ended September 30, 2022 compared to 5.1% for the nine months ended September 30, 2021. The increase was due to decreased sales.2022.
General and administrative. General and administrative expenses for the three months ended September 30, 2022 decreased 3.0%2023 increased 220.5% to $756,000$1,564,000 compared to $779,000$488,000 for the three months ended September 30, 2021. Increased expenses for2022. The increase was primarily due to transaction-related severance and other separation benefits amounting to $926,000 in connection with the strategic alternatives process were substantially offset by decreased litigation expenses.termination of Kristine Glancy, our previous CEO. General and administrative expenses for the nine months ended September 30, 2022 decreased 43.0%2023 increased 71.3% to $2,310,000$2,849,000 compared to $4,052,000$1,663,000 for the nine months ended September 30, 2021.2022. The decreases for both periods were primarily due to higher expenses incurred in the prior year period as a result of litigation with News America. Following the litigation settlement on July 1, 2022, the Company does not expect to incur further expenses related to the legal proceedings with News America.
General and administrative expenses as a percentage of total net sales decreased to 15.5% for the three months ended September 30, 2022 compared to 22.3% for the three months ended September 30, 2021. The decreaseincrease was primarily due to increased sales. Generaltransaction-related severance and administrative expenses asother separation benefits in connection with the termination of Kristine Glancy, mentioned above, in addition to the comparison of reduced expense in 2022 from the Director Deferred Compensation Plan due to a percentage of net sales decreased to 16.2% forreduction in our share price during the nine months ended September 30, 2022 compared2022. We are working with all our vendors and service providers to 27.0% for the nine months ended September 30, 2021. The decrease was due to the factors described above, partially offset by decreased sales.reduce certain expenses going forward.
Gain from litigation settlement. On July 1, 2022, the Company entered into a $20,000,000 settlement agreement with News America, with net proceeds after expenses of $12,000,000. The agreement memorializes the amicable settlement of the Company’s outstanding lawsuit against News America.
OtherInterest Income. OtherInterest income for the three months ended September 30, 20222023 was $72,000$111,000 compared to other income of $13,000$55,000 for the three months ended September 30, 2021, primarily due to interest income. Other2022. Interest income for the nine months ended September 30, 20222023 was $100,000$325,000 compared to other income of $1,017,000$55,000 for the nine months ended September 30, 2021. The significantly higher2022. Interest income in 2023 increased over 2022 primarily due to higher invested balances, which included the prior year period reflectsnet proceeds from litigation of $12 million received in July 2022 and the gainhigher interest rates available on forgiveness of debtinvestment in short-term treasury bills and accrued interest of $1,062,000 from the SBA forgiving the Company’s loan pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.interest-bearing savings.
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Income Taxes. For the three and nine months ended September 30, 2022,2023 the Company recorded income tax benefit(benefit) of $190,000$(11,000) and $168,000,$(4,000) respectively, or (1.6)%0.6% and (1.6)%0.1% of loss from continuing operations before income before taxes, respectively. For the three and nine months ended September 30, 2021,2022 the Company recorded income tax expense of $9,000$1,000 and $32,000,$5,000 respectively, or 1.0%(0.2)% and 1.3%(0.3)% of loss from continuing operations before income before taxes, respectively. The income tax expense or benefit(benefit) for the three and nine months ended September 30, 2023 and 2022 and 2021 is comprised ofcomprises federal and state income taxes. The primary differences between the Company’s September 30, 20222023 and 20212022 effective tax rates and the statutory federal rate are expenses related to stock-based compensation, nondeductible penaltiesstate income taxes and for 2021 increaseschanges in the Company’s valuation allowance against its deferred tax assets and for 2022 decreases in the Company’s valuation allowance against its deferred tax assts and decreases in the Company’s reserve for unrecognized tax benefits. assets.
The Company reassesses its effective tax rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).
Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.
In the third quarter of 2022, the Company recognized an income tax benefit of approximately $2,128,000 due to the partial reversal of its valuation allowance on deferred tax assets. This partial reversal of the valuation allowance is based on the Company’s expected ability to utilize a portion of its federal and state net operating losses carried forward against 2022 federal and state income tax liabilities. The Company will continue to assess the potential realization of its remaining deferred tax assets in the future to determine if sufficient evidence exists to remove all or a portion of the Company’s valuation allowance on its deferred tax assets.
As a result of the Company’s future outlook, management has concluded that the uncertainties related to the realization of its deferred tax assets are unfavorable. Management has considered positive and negative evidence for the potential utilization of the deferred tax assets and has concluded, as of September 30, 2022, that it is more likely than not that Company will not realize the full amount of its net deferred tax assets. Therefore, the valuation allowance on deferred tax assets not recognized in 2022 will remain.
As of September 30, 2022,2023, and December 31, 2021,2022, the Company had unrecognized tax benefits totaling $52,000$41,000 and $711,000,$53,000, respectively, including interest, which relates to state nexus exposure.issues. The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $52,000. The Company has recorded a decrease of approximately $679,000 in unrecognized tax benefits related to state exposure in the third quarter of 2022, which will reduce accrued income taxes and increase the current income tax benefit. The Company has determined it is no longer more likely than not that the Company will realize the tax expense.$41,000.
A reconciliation of the beginning and ending amount of unrecognized income tax benefit is as follows:
Balance at December 31, 2021 |
| $ | 711,000 |
|
Increase due to interest and state tax |
|
| 20,000 |
|
Decrease in prior year interest and state tax |
|
| (679,000 | ) |
Balance at September 30, 2022 |
| $ | 52,000 |
|
At December 31, 2021,2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $9,700,000.$2,900,000. As of September 30, 20222023, the Company estimates remaining Federal NOL carryforwards to be approximately $2,000,000. The federal$1,390,000. Federal NOL utilization wasis limited to 80% of estimated taxable income. The estimated NOL carry-forwardcarry forward will be adjusted at year end for fourth quarteractual results.
Net Income (Loss).Loss from Continuing Operations. For the reasons stated above, net incomeloss from continuing operations for the three months ended September 30, 2023 was $1,511,000 and net loss from continuing operations for the nine months ended September 30, 20222023 was $11,801,000 and $10,779,000, respectively,$2,654,000, compared to net loss from continuing operations of $921,000$434,000 and $2,552,000,$1,613,000, respectively, for the three and nine months ending September 30, 2021.2022. As we seek to grow our Lending Business, we anticipate minimal revenue and losses from continuing operations for the remainder of the year.
Liquidity and Capital Resources
The Company hasWe have historically financed itsour operations with proceeds from stock sales and sales of itsour services and products.products, subject to occasional supplemental proceeds from the settlement of litigation. The sale of the In-Store Marketing Business on August 3, 2023 generated approximately $1.6 million of cash, directly from the buyer. At September 30, 2022,2023, working capital was $14,000,000 (defined as current(current assets less current liabilities) was $15,892,000, compared to $3,716,000$13,379,000 at December 31, 2021.2022. During the nine months ended September 30, 2022,2023, cash and cash equivalents and restricted cash increased $10,402,000$515,000 from $3,851,000$14,524,000 at December 31, 2021,2022 to $14,253,000$15,039,000 at September 30, 2022. These increases were the result of the net proceeds of $12,000,000 from the litigation settlement.2023.
Operating Activities. Net cash provided byused in continuing operating activities during the nine months ended September 30, 2022,2023, was $10,388,000.$2,325,000. Net income of $10,779,000,$2,738,000, less income from discontinued operations of $2,422,000, less the gain from the sale of discontinued operations of $2,970,000, plus non-cash adjustments of $87,000, less$46,000, plus changes in operating assets and liabilities of $478,000$283,000, resulted in the $10,388,000$2,325,000 of cash provided byused in operating activities. The non-cash adjustments consisted of depreciation expense and stock-based compensation expense. The largest componentscomponent of the change in operating assets and liabilities werewas accrued liabilities, which decreased $740,000increased $630,000 from December 31, 20212022. The increase was primarily due to paymentthe $650,000 of payroll tax associated with vesting of RSUs on December 31, 2021 and a decreaseseverance related payments that remains to accrued director deferred compensation duebe paid to changes in our stock price from December 31, 2021, and accrued income taxes which decreased $659,000 from December 31, 2021 due to a reduction in uncertain tax positions. In the normal course of business, our accounts receivable, accounts payable, accrued liabilities and deferred revenue will fluctuate depending on the level of revenues and related business activity, as well as billing arrangements with customers.Company’s prior CEO, Ms. Glancy.
Investing Activities. Net cash used inprovided by investing activities from continuing operations during the nine months ended September 30, 20222023 was $25,000,$1,557,000, which relatedwas due to purchasethe proceeds from the sale of property and equipment.our In-Store Marketing Business.
Financing Activities. Net cash used in financing activities during the nine months ended September 30, 20222023 was $39,000,$428,000, which related to cash used for the repurchase of common stock, partially offset by proceeds from the issuance of common stock undershares per the employee stock purchase plan and exercised stock options. Director Deferred Compensation Plan for two former non-employee directors.
16 |
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Primarily as a result of the net proceeds from the litigation settlement of $12 million in the three months ended September 30, 2022, cash
Cash and cash equivalents plus restricted cash at September 30, 20222023 were $14.3$15.0 million. The Company believes that based upon current business conditions and plans, its cash balanceand cash equivalents balances will be sufficient for its cash requirements for at least the twelve-month period subsequentnext 12 months.
On August 28, 2023, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock. The plan allows the purchases to be made in the open market or in privately negotiated transactions. The plan does not obligate the Company to repurchase any particular number of shares and may be suspended anytime at the Company’s discretion. In the three months ended September 30, 2023, the Company repurchased 75,345 shares at a total cost of $437,000.
As the Company grows its Lending Business, we may be required to finance this process through equity offerings or debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the U.S. and worldwide. If we are unable to raise additional funds when needed we may not be able to grow our Lending Business, or complete transactions related to the filing of this Form 10-Q. strategic alternatives process.
Critical Accounting Estimates
Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with GAAP.accounting principles generally accepted in the United States of America. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to allowance for doubtful accounts, income taxes, sales tax, and stock-based compensation expense. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements.
Our significant accounting policies and estimates are described in Note 1 to the annual financial statements included in Part II, Item 8 and in Item 7 of our Annual Report on Form 10-K as of and for the year ended December 31, 2021,2022, filed with the Securities and Exchange Commission on March 9, 2022.2023. We believe our most critical accounting estimates include the following:
| · | allowance for doubtful accounts; |
| · | sales |
| · | income taxes; and |
| · | stock-based |
Cautionary Statement Regarding Forward-Looking Statements
Certain statements made in this Quarterly Report on Form 10-Q, in the Company’s other SEC filings, in press releases and in oral statements to shareholdersstockholders and securities analysts that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. The words “anticipates,“anticipate,” “believes,“believe,” “estimates,“could,” “expects,“estimate,” “expect,” “future,” “likely,” “may,” “projects,“plan,” “seeks,“project,” “will” and similar expressions identify forward-looking statements. Forward-looking statements include statements expressing the intent, belief or current expectations of the Company and members of our management team regarding, for instance: (i) our belief that our cash balance and cash generated by operations will provide adequate liquidity and capital resources for at least the next twelve months; and (ii) our belief that we expect fluctuations in accounts receivable and payable, accrued liabilities, revenue deferrals and prepaid production costs.will reduce certain expenses going forward. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes.
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Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following:(i) local, regional, national, Forward-looking statements involve known and international economicunknown risks, uncertainties and other factors, including: (1) the availability of strategic alternatives on acceptable terms, if at all, (2) the limited history of our Lending Business, (3) the substantial risk of loss associated with lending generally, (4) market conditions that have deteriorated as a result of the COVID-19 pandemic, inflation,may restrict or delay appropriate or desirable Lending Business opportunities, (5) our ability to develop and labor shortages, including the risks of a global recessionmaintain necessary processes and controls relating to our Lending Business (6) reliance on one or a recession in one or moresmall number of employees, (7) potential adverse classifications of our key markets, and the impact they may have on us andCompany if we are unsuccessful in executing our customers and our assessment of that impact; (ii) management’s ability to fully or successfully implement its business plan, to achieve and maintain increased sales and resultant profitability in the future; (iii) the Company’s success in developing and implementing new product offerings, in a successful manner; (iv) prevailing market conditions, including pricing and other competitive pressures, in the in-store advertising industry and, intense competition for agreements with CPG retailers and manufacturers; (v) potentially incorrect assumptions by management with respect to the financial effect of current strategic decisions and the effect of current sales trends on fiscal year 2022 results; (vi) termination of all or a major portion of, or a significant change in terms and conditions of, a material agreement with a CPG manufacturer or retailer; (vii)(8) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally; (viii) our ability to successfully manage our IT operating infrastructure outsourcing arrangement; and (ix)(9) our ability to attract and retain highly qualified managerial, operational and sales personnel. Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2021,2022 and this Quarterly Report on Form 10-Q, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and its principal financial officer and its principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s principal executive officer and principal financial officer and its principal financial officer concluded that the Company’s disclosure controls and procedures as of September 30, 20222023 were effective.
Changes in Internal Control Over Financial Reporting
No changes in the Company’s internal control over financial reporting occurred during the third quarter of 20222023 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A descriptionThere are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our legal proceedings, ifsubsidiaries are a party or of which any of our property is contained in Note 6 of the Notes to Condensed Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, incorporated herein by reference.subject.
Item 1A. Risk Factors
ThereExcept as set forth below there have been no material changes in our risk factors from those previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
RISKS RELATING TO OUR BUSINESS
Our new lending business has limited history.
Our Non-Bank Lending business (our “Lending Business”) is recently formed and has no operating history and has generated no revenues through September 30, 2023. This lack of operating history makes it difficult to evaluate our future prospects and the risks and challenges we may encounter. There is no assurance that we can generate significant revenues in the non-bank lending marketplace, and even if revenues are generated there is no assurance that we can earn a profit from this new business. Because our Lending Business’s activities are in a very early stage, we can neither predict all potential risks nor assess the potential effects of those risks on our Lending Business’s, operating results, and financial condition or how much any factor, or combination of factors, could have an adverse effect on our business, results of operations and financial condition.
Non-bank lending involves a substantial risk of loss.
Our Lending Business intends to assume the ultimate credit risk of borrower defaults on its future planned loan assets, and our Lending Business’s earnings, which come from net interest income and fees on those assets, depend significantly on their performance. Widespread and sustained repayment shortfalls on loans in our Lending Business’s portfolio could result in losses, particularly if the value of the available collateral does not cover our Lending Business’s exposure, and could materially and adversely affect our Lending Business’s, operations, operating results, financial condition, liquidity, or capital levels.
RISKS RELATING TO ECONOMY AND MARKET CONDITIONS
Market conditions may restrict or delay desirable non-bank lending opportunities.
Our Lending Business’s operating results, financial condition, and capital levels may be materially and adversely affected by external factors that may affect the price or marketability of our Lending Business’s planned products and services or our Lending Business’s ability to offer its products and services, including, but not limited to:
· | disruptions in the debt or equity capital markets; | |
· | competitive pressures in our Lending Business’s loan; | |
· | changes in interest rates that may increase our Lending Business’s funding costs; and | |
· | market or customer perception of our Lending Business’s reputation. |
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OPERATIONAL RISKS
Our Lending Business and related operations require development of new processes and controls.
Our Lending Business is exposed to operational risk due to the complex nature of its planned business operations and the processes and systems used to undertake its business activities and comply with regulatory requirements. Operational risks specific to our Lending Business include the risks of loss resulting from:
· | inadequate or failed internal processes, systems, cybersecurity program, or infrastructure; | |
· | our Lending Business’s inability to successfully implement enhancements to any of these or migrate to new systems or infrastructure; | |
· | failed execution, including based on human error; | |
· | inadequate or failed internal controls or processes to detect or prevent fraud or other violations of law or regulations; or | |
· | external events, including a disruption involving physical site access, cyber incidents, catastrophic events, natural disasters, terrorist activities, or disease pandemics. |
Any of the foregoing could have an adverse effect on our ability to conduct our Lending Business, and our results of operations and financial condition.
The success of our Lending Business initially will depend on one or a small number of employees.
Our Lending Business will rely on its employee’s breadth and depth of knowledge of lending businesses and related industries to run its planned business operations successfully. If our Lending Business cannot retain and attract motivated and qualified employees or does not have adequate human capital to achieve its business objectives, our Lending Business’s performance, operations, financial condition, or reputation could be materially adversely affected.
20 |
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Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
None.On August 28, 2023, the Company announced that its Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock. The Company may purchase shares of its common stock from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. Open market repurchases may be affected pursuant to Rule 10b5-1 trading plans. The manner, timing, number and prices of shares purchased under the authorization will be determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, general market and economic conditions, and applicable legal requirements. The authorization does not obligate the Company to acquire any particular amount of its common stock or to acquire shares on any particular timetable and may be suspended or discontinued at any time at the Company’s discretion.
Repurchase activity for the three months ended September 30, 2023 (excluding fees associated with the repurchases of approximately $1,000), was as follows:
Period |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced plans or programs |
|
| Approximate dollar value of shares purchased under the plans or programs |
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| Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs |
| |||||
July 1 - 31, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 400,000 |
|
August 1 - 31, 2023 |
|
| 66,108 |
|
|
| 5.76 |
|
|
| 66,108 |
|
|
| 380,782 |
|
|
| 333,892 |
|
September 1 - 30, 2023 |
|
| 9,237 |
|
|
| 5.94 |
|
|
| 9,237 |
|
|
| 54,868 |
|
|
| 324,655 |
|
|
|
| 75,345 |
|
|
|
|
|
|
| 75,345 |
|
|
| 435,650 |
|
|
|
|
|
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.During the three months ended September 30, 2023, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits
Exhibit Number | Description | Incorporated by Reference to/Method of Filing | ||
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| Exhibit 2.1 to Current Report filed May 25, 2023 | |||
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| Exhibit 3.1 to Current Report | |
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| Exhibit 3.2 to | ||
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| Exhibit 10.1 to Current Report | ||
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| ||
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| Filed Electronically | |||
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| Filed Electronically | ||
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| Furnished Electronically | |||
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|
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|
|
101 |
| The following materials from |
| Filed Electronically |
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|
|
104 |
| Cover Page Interactive Data |
| Filed Electronically |
* | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished. |
† | Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(b) of Form 10-K. |
‡ | Redacted in compliance with Regulation S-K Item 601(a)(6) and certain exhibits and schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. |
Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| (Registrant) |
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Dated: November | /s/ |
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| President and Chief Executive Officer |
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| (on behalf of |
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Dated: November | /s/ Zackery A. Weber |
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| Zackery A. Weber |
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| Vice President of Finance |
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| (principal financial and accounting officer) |
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