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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended September 30, 2024

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: 001-13471

LENDWAY, INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 41-1656308
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

5000 West 36th Street, Suite 220, Minneapolis, Minnesota 55416
(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 |  | LDWY |  | 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, 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.:

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 15, 2024 was 1,769,599.

Lendway, Inc.

TABLE OF CONTENTS

|  |  | Page |
PART I. | FINANCIAL INFORMATION |  | 3 |
Item 1. | Financial Statements |  | 3 |
| Condensed Consolidated Balance Sheets – September 30, 2024 (unaudited) and December 31, 2023 |  | 3 |
| Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) – Three and nine months ended September 30, 2024 and 2023 (unaudited) |  | 4 |
| Condensed Consolidated Statements of Stockholders’ Equity – Three and nine months ended September 30, 2024 and 2023 (unaudited) |  | 5 |
| Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2024 and 2023 (unaudited) |  | 6 |
| Notes to Condensed Consolidated Financial Statements – (unaudited) |  | 7 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 25 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |  | 33 |
Item 4. | Controls and Procedures |  | 33 |
PART II. | OTHER INFORMATION |  | 34 |
Item 1. | Legal Proceedings |  | 34 |
Item 1A. | Risk Factors |  | 34 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |  | 35 |
Item 3. | Defaults upon Senior Securities |  | 35 |
Item 4. | Mine Safety Disclosures |  | 35 |
Item 5. | Other Information |  | 35 |
Item 6. | Exhibits |  | 36 |

2
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lendway, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

Values are rounded to the nearest thousand dollar and thousand share

|  | September 30, |  |  | December 31, |
|  | 2024 |  |  | 2023 |
|  | (Unaudited) |  |  |  |
Assets |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,333,000 |  |  | $ | 16,077,000 |
Accounts receivable, net |  |  | 2,337,000 |  |  |  | - |
Receivable from escrow account |  |  | - |  |  |  | 200,000 |
Inventories, net |  |  | 15,490,000 |  |  |  | - |
Prepaid expenses and other current assets |  |  | 1,423,000 |  |  |  | 52,000 |
Other current assets related to discontinued operations |  |  | - |  |  |  | 292,000 |
Total current assets |  |  | 20,583,000 |  |  |  | 16,621,000 |
Property and equipment, net |  |  | 11,538,000 |  |  |  | 35,000 |
Equity-method investment |  |  | 167,000 |  |  |  | - |
Goodwill |  |  | 10,474,000 |  |  |  | - |
Intangible assets, net |  |  | 25,950,000 |  |  |  | - |
Operating lease right-of-use assets |  |  | 33,362,000 |  |  |  | 7,000 |
Finance lease right-of-use assets |  |  | 16,000 |  |  |  | - |
Long-term receivable |  |  | 369,000 |  |  |  | - |
Other assets |  |  | - |  |  |  | 10,000 |
Total assets |  | $ | 102,459,000 |  |  | $ | 16,673,000 |
Liabilities and Stockholders' equity |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 3,679,000 |  |  | $ | 32,000 |
Accrued compensation |  |  | 348,000 |  |  |  | 635,000 |
Accrued expenses and other current liabilities |  |  | 1,640,000 |  |  |  | 168,000 |
Current portion of operating lease liabilities |  |  | 1,042,000 |  |  |  | 4,000 |
Current portion of finance lease liabilities |  |  | 28,000 |  |  |  | - |
Current portion of debt |  |  | 2,271,000 |  |  |  | - |
Current liabilities related to discontinued operations |  |  | 55,000 |  |  |  | 257,000 |
Total current liabilities |  |  | 9,063,000 |  |  |  | 1,096,000 |
Long-term liabilities: |  |  |  |  |  |  |  |
Accrued income taxes |  |  | - |  |  |  | 42,000 |
Operating lease liabilities, net of current portion |  |  | 32,729,000 |  |  |  | 3,000 |
Finance lease liabilities, net of current portion |  |  | 46,000 |  |  |  | - |
Long-term debt, net |  |  | 34,610,000 |  |  |  | - |
Related party note payable |  |  | 2,008,000 |  |  |  | - |
Deferred tax liabilities, net |  |  | 8,738,000 |  |  |  | - |
Total Long-term liabilities |  |  | 78,131,000 |  |  |  | 45,000 |
Commitments and contingencies (Note 13) |  |  |  |  |  |  |  |
Stockholders' equity |  |  |  |  |  |  |  |
Common stock, par value $0.01: |  |  |  |  |  |  |  |
Authorized shares - 5,714,000 |  |  |  |  |  |  |  |
Issued and outstanding shares - 1,770,000 and 1,743,000 at September 30, 2024 and December 31, 2023, respectively |  |  | 17,000 |  |  |  | 17,000 |
Additional paid-in capital |  |  | 16,212,000 |  |  |  | 16,176,000 |
Accumulated other comprehensive income |  |  | 38,000 |  |  |  | - |
Accumulated deficit |  |  | (3,464,000 | ) |  |  | (661,000 | )
Total stockholders' equity attributable to Lendway, Inc. |  |  | 12,803,000 |  |  |  | 15,532,000 |
Equity from noncontrolling interest |  |  | 2,462,000 |  |  |  | - |
Total Stockholders' equity |  |  | 15,265,000 |  |  |  | 15,532,000 |
Total Liabilities and Stockholders' equity |  | $ | 102,459,000 |  |  | $ | 16,673,000 |

See accompanying notes to the condensed consolidated financial statements.

3
Table of Contents

Lendway, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Values are rounded to the nearest thousand dollar and thousand share

(Unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Revenue, net |  | $ | 6,628,000 |  |  | $ | - |  |  | $ | 31,581,000 |  |  | $ | - |
Cost of goods sold |  |  | 5,188,000 |  |  |  | - |  |  |  | 24,490,000 |  |  |  | - |
Gross profit |  |  | 1,440,000 |  |  |  | - |  |  |  | 7,091,000 |  |  |  | - |
Sales, general and administrative expenses |  |  | 2,791,000 |  |  |  | 1,633,000 |  |  |  | 9,920,000 |  |  |  | 2,983,000 |
Operating loss |  |  | (1,351,000 | ) |  |  | (1,633,000 | ) |  |  | (2,829,000 | ) |  |  | (2,983,000 | )
Foreign exchange difference, net |  |  | 46,000 |  |  |  | - |  |  |  | 10,000 |  |  |  | - |
Interest expense (income), net |  |  | 800,000 |  |  |  | (111,000 | ) |  |  | 1,989,000 |  |  |  | (325,000 | )
Other expenses, net |  |  | (3,000 | ) |  |  | - |  |  |  | (3,000 | ) |  |  | - |
Loss from continuing operations before income taxes |  |  | (2,194,000 | ) |  |  | (1,522,000 | ) |  |  | (4,825,000 | ) |  |  | (2,658,000 | )
Income tax benefit |  |  | (736,000 | ) |  |  | (11,000 | ) |  |  | (1,284,000 | ) |  |  | (4,000 | )
Net loss from continuing operations |  |  | (1,458,000 | ) |  |  | (1,511,000 | ) |  |  | (3,541,000 | ) |  |  | (2,654,000 | )
Income (loss) from discontinued operations, net of tax |  |  | 66,000 |  |  |  | (333,000 | ) |  |  | 202,000 |  |  |  | 2,422,000 |
Gain from sale of discontinued operations, net of tax |  |  | - |  |  |  | 2,970,000 |  |  |  | - |  |  |  | 2,970,000 |
Net (loss) income including noncontrolling interest |  |  | (1,392,000 | ) |  |  | 1,126,000 |  |  |  | (3,339,000 | ) |  |  | 2,738,000 |
Less: Net loss attributable to noncontrolling interest |  |  | (267,000 | ) |  |  | - |  |  |  | (536,000 | ) |  |  | - |
Net (loss) income attributable to Lendway, Inc. |  |  | (1,125,000 | ) |  |  | 1,126,000 |  |  |  | (2,803,000 | ) |  |  | 2,738,000 |
Other comprehensive income (foreign currency translation) |  |  | 1,000 |  |  |  | - |  |  |  | 47,000 |  |  |  | - |
Comprehensive (loss) income including noncontrolling interest |  |  | (1,124,000 | ) |  |  | 1,126,000 |  |  |  | (2,756,000 | ) |  |  | 2,738,000 |
Less: Comprehensive loss income attributable to noncontrolling interest |  |  | - |  |  |  | - |  |  |  | 9,000 |  |  |  | - |
Comprehensive (loss) income attributable to Lendway, Inc. |  | $ | (1,124,000 | ) |  | $ | 1,126,000 |  |  | $ | (2,765,000 | ) |  | $ | 2,738,000 |
Net (loss) income per basic and diluted share attributable to Lendway, Inc.: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | (0.67 | ) |  | $ | (0.85 | ) |  | $ | (1.70 | ) |  | $ | (1.48 | )
Discontinued operations |  |  | 0.04 |  |  |  | 1.48 |  |  |  | 0.11 |  |  |  | 3.01 |
Basic and diluted earnings per share |  | $ | (0.64 | ) |  | $ | 0.63 |  |  | $ | (1.58 | ) |  | $ | 1.53 |
Weighted average shares used in calculation of net (loss) income per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  |  | 1,770,000 |  |  |  | 1,785,000 |  |  |  | 1,770,000 |  |  |  | 1,793,000 |

See accompanying notes to the condensed consolidated financial statements.

4
Table of Contents

Lendway, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Values are rounded to the nearest thousand dollar and thousand share

(Unaudited)

|  |  |  |  |  |  |  | Additional |  |  | Accumulated Other |  |  |  |  |  | Total Lendway |  |  |  |  |  | Total |
|  | Common Stock |  |  | Paid-In |  |  | Comprehensive |  |  | Accumulated |  |  | Stockholders' |  |  | Noncontrolling |  |  | Stockholders' |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Income |  |  | Deficit |  |  | Equity |  |  | Interest |  |  | Equity |
BALANCE DECEMBER 31, 2023 |  |  | 1,743,000 |  |  | $ | 17,000 |  |  | $ | 16,176,000 |  |  | $ | - |  |  | $ | (661,000 | ) |  | $ | 15,532,000 |  |  | $ | - |  |  | $ | 15,532,000 |
Value of stock-based compensation |  |  | - |  |  |  | - |  |  |  | 1,000 |  |  |  | - |  |  |  | - |  |  |  | 1,000 |  |  |  | - |  |  |  | 1,000 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,163,000 | ) |  |  | (1,163,000 | ) |  |  | (251,000 | ) |  |  | (1,414,000 | )
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,000 |  |  |  | - |  |  |  | 3,000 |  |  |  | - |  |  |  | 3,000 |
Issuance of noncontrolling interests in acquisition |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,990,000 |  |  |  | 2,990,000 |
BALANCE MARCH 31, 2024 |  |  | 1,743,000 |  |  | $ | 17,000 |  |  | $ | 16,177,000 |  |  | $ | 3,000 |  |  | $ | (1,824,000 | ) |  | $ | 14,373,000 |  |  | $ | 2,739,000 |  |  | $ | 17,262,000 |
Issuance of restricted stock awards |  |  | 27,000 |  |  |  | 270 |  |  |  | (270 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Value of stock-based compensation |  |  | - |  |  |  | - |  |  |  | 13,000 |  |  |  | - |  |  |  | - |  |  |  | 13,000 |  |  |  | - |  |  |  | 13,000 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (515,000 | ) |  |  | (515,000 | ) |  |  | (19,000 | ) |  |  | (534,000 | )
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 34,000 |  |  |  | - |  |  |  | 34,000 |  |  |  | 9,000 |  |  | $ | 43,000 |
BALANCE JUNE 30, 2024 |  |  | 1,770,000 |  |  | $ | 17,000 |  |  | $ | 16,190,000 |  |  | $ | 37,000 |  |  | $ | (2,339,000 | ) |  | $ | 13,905,000 |  |  | $ | 2,729,000 |  |  | $ | 16,634,000 |
Value of stock-based compensation |  |  | - |  |  |  | - |  |  |  | 22,000 |  |  |  | - |  |  |  | - |  |  |  | 22,000 |  |  |  | - |  |  |  | 22,000 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,125,000 | ) |  |  | (1,125,000 | ) |  |  | (267,000 | ) |  |  | (1,392,000 | )
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,000 |  |  |  | - |  |  |  | 1,000 |  |  |  | - |  |  |  | 1,000 |
BALANCE AT SEPTEMBER 30, 2024 |  |  | 1,770,000 |  |  | $ | 17,000 |  |  | $ | 16,212,000 |  |  | $ | 38,000 |  |  | $ | (3,464,000 | ) |  | $ | 12,803,000 |  |  | $ | 2,462,000 |  |  | $ | 15,265,000 |
BALANCE DECEMBER 31, 2022 |  |  | 1,797,000 |  |  | $ | 18,000 |  |  | $ | 16,458,000 |  |  | $ | - |  |  | $ | (3,075,000 | ) |  | $ | 13,401,000 |  |  | $ | - |  |  | $ | 13,401,000 |
Issuance of common stock, net |  |  | 1,000 |  |  |  | - |  |  |  | 8,000 |  |  |  | - |  |  |  | - |  |  |  | 8,000 |  |  |  | - |  |  |  | 8,000 |
Value of stock-based compensation |  |  | - |  |  |  | - |  |  |  | 22,000 |  |  |  | - |  |  |  | - |  |  |  | 22,000 |  |  |  | - |  |  |  | 22,000 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,648,000 |  |  |  | 1,648,000 |  |  |  | - |  |  |  | 1,648,000 |
BALANCE MARCH 31, 2023 |  |  | 1,798,000 |  |  | $ | 18,000 |  |  | $ | 16,488,000 |  |  | $ | - |  |  | $ | (1,427,000 | ) |  | $ | 15,079,000 |  |  |  | - |  |  | $ | 15,079,000 |
Value of stock-based compensation |  |  | - |  |  |  | - |  |  |  | 14,000 |  |  |  | - |  |  |  | - |  |  |  | 14,000 |  |  |  | - |  |  |  | 14,000 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (36,000 | ) |  |  | (36,000 | ) |  |  | - |  |  |  | (36,000 | )
BALANCE AT JUNE 30, 2023 |  |  | 1,798,000 |  |  |  | 18,000 |  |  |  | 16,502,000 |  |  |  | - |  |  |  | (1,463,000 | ) |  |  | 15,057,000 |  |  |  | - |  |  | $ | 15,057,000 |
Repurchase of common stock |  |  | (75,000 | ) |  |  | - |  |  |  | (437,000 | ) |  |  | - |  |  |  | - |  |  |  | (437,000 | ) |  |  | - |  |  |  | (437,000 | )
Issuance of common stock, net |  |  | 22,000 |  |  |  | - |  |  |  | 149,000 |  |  |  | - |  |  |  | - |  |  |  | 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 |  |  |  | - |  |  |  | 7,000 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,126,000 |  |  |  | 1,126,000 |  |  |  | - |  |  |  | 1,126,000 |
BALANCE AT SEPTEMBER 30, 2023 |  |  | 1,751,000 |  |  | $ | 18,000 |  |  | $ | 16,221,000 |  |  | $ | - |  |  | $ | (337,000 | ) |  | $ | 15,902,000 |  |  | $ | - |  |  | $ | 15,902,000 |

See accompanying notes to the condensed consolidated financial statements.

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Lendway, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Values are rounded to the nearest thousand dollar

(Unaudited)

Nine Months Ended September 30, |  | 2024 |  |  | 2023 |
Operating Activities |  |  |  |  |  |
Net (loss) income including noncontrolling interest |  | $ | (3,339,000 | ) |  | $ | 316,000 |
Gain from sale of discontinued operations, net of tax |  |  | - |  |  |  | (2,970,000 | )
Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 1,928,000 |  |  |  | 3,000 |
Amortization of deferred financing costs |  |  | 77,000 |  |  |  | - |
Changes in allowance for credit losses |  |  | - |  |  |  | - |
Stock-based compensation expense |  |  | 36,000 |  |  |  | 43,000 |
Noncash paid in kind interest expense |  |  | 936,000 |  |  |  | - |
Noncash operating lease expense |  |  | 1,145,000 |  |  |  | - |
Deferred income tax benefit |  |  | (1,542,000 | ) |  |  | - |
Increase (decrease) in cash resulting from changes in, net of acquisition: |  |  |  |  |  |  |  |
Accounts receivable, net |  |  | 1,093,000 |  |  |  | (200,000 | )
Inventories |  |  | (3,008,000 | ) |  |  | - |
Income tax receivable |  |  | - |  |  |  | 2,000 |
Prepaid expenses and other current assets |  |  | 515,000 |  |  |  | (96,000 | )
Accounts payable |  |  | 1,583,000 |  |  |  | (41,000 | )
Accrued compensation |  |  | (2,100,000 | ) |  |  | - |
Accrued expenses and other current liabilities |  |  | (100,000 | ) |  |  | 630,000 |
Accrued income taxes |  |  | 113,000 |  |  |  | (12,000 | )
Net cash used in operating activities of continuing operations |  |  | (2,663,000 | ) |  |  | (2,325,000 | )
Net cash provided by operating activities of discontinued operations |  |  | 90,000 |  |  |  | 1,735,000 |
Net cash used in operating activities |  |  | (2,573,000 | ) |  |  | (590,000 | )
Investing Activities |  |  |  |  |  |  |  |
Proceeds from sale of business |  |  | - |  |  |  | 1,581,000 |
Purchases of property and equipment |  |  | (704,000 | ) |  |  | (24,000 | )
Acquisition of Bloomia, net of cash acquired |  |  | (34,178,000 | ) |  |  | - |
Receipt of escrow receivable |  |  | 200,000 |  |  |  | - |
Net cash (used in) provided by investing activities of continuing operations |  |  | (34,682,000 | ) |  |  | 1,557,000 |
Net cash used in investing activities of discontinued operations |  |  | - |  |  |  | (24,000 | )
Net cash (used in) provided by investing activities |  |  | (34,682,000 | ) |  |  | 1,533,000 |
Financing Activities |  |  |  |  |  |  |  |
Proceeds from term loan |  |  | 18,000,000 |  |  |  | - |
Proceeds from revolving debt |  |  | 11,056,000 |  |  |  | - |
Proceeds from related party note |  |  | 2,000,000 |  |  |  | - |
Proceeds from machinery financing loan |  |  | 156,000 |  |  |  | - |
Repayments of long-term debt |  |  | (450,000 | ) |  |  | - |
Repayments of seller note |  |  | (2,700,000 | ) |  |  | - |
Repayments of revolving debt |  |  | (5,065,000 | ) |  |  | - |
Principal payments on finance lease liabilities |  |  | (11,000 | ) |  |  | - |
Payment of financing costs |  |  | (513,000 | ) |  |  | - |
Proceeds from issuances of common stock |  |  |  |  |  |  | 9,000 |
Repurchase of common stock, net |  |  | - |  |  |  | (437,000 | )
Net cash provided by (used in) financing activities |  |  | 22,473,000 |  |  |  | (428,000 | )
Effect of exchange rate changes |  |  | 38,000 |  |  |  | - |
Net decrease in cash and cash equivalents |  |  | (14,744,000 | ) |  |  | 515,000 |
Cash and cash equivalents, beginning of period |  |  | 16,077,000 |  |  |  | 14,524,000 |
Cash and cash equivalents, end of period |  | $ | 1,333,000 |  |  | $ | 15,039,000 |
Supplemental cash flow information |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 1,006,000 |  |  | $ | - |
Cash paid for income taxes |  | $ | 438,000 |  |  | $ | 79,000 |
Noncash purchase consideration - Equity issuance of noncontrolling interest |  | $ | 2,990,000 |  |  | $ | - |
Noncash purchase consideration - Seller notes |  | $ | 15,451,000 |  |  | $ | - |
Non-cash financing activities |  |  |  |  |  |  |  |
Common stock issued for accrued liabilities |  | $ | - |  |  | $ | 148,000 |

See accompanying notes to the condensed consolidated financial statements.

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Lendway, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation.

Description of Business. Lendway, Inc. (“the Company”) is a specialty agricultural (“ag”) company focused on making and managing its ag investments in the United States (“U.S.”) and internationally. On February 22, 2024, the Company, through its majority-owned U.S. subsidiary Tulp 24.1, LLC (“Tulp 24.1”), acquired Bloomia B.V. (“Bloomia”). Subsequent to the purchase of Bloomia, the Company’s primary operations will be that of Bloomia. Bloomia is a significant producer of fresh cut tulips in the U.S. with a presence in the Netherlands and South Africa. As part of consideration for the business combination, the Company issued units of Tulp 24.1 to the continuing CEO of Bloomia, which amounted to 18.6% and is presented as noncontrolling interest in these unaudited condensed consolidated financial statements. The remaining 81.4% equity interest of Tulp 24.1 is owned by the Company and the Company is and maintains control of Tulp 24.1 as its sole managing member. Refer to Note 3 for further discussion. The Company had previously planned to also develop a non-bank lending business via its wholly owned subsidiary, Farmland Credit, Inc. (“FCI”), and FCI’s subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC. Promptly after receiving a notice of resignation from the Company’s then-serving Chief Executive Officer in June 2024, our Board of Directors reexamined the Company’s strategic position and prospects. Primarily because the departing Chief Executive Officer represented nearly all of the Company’s knowledge and expertise relating to the purchase of existing loans and/or origination and funding of new loans, the Company has determined to focus solely on the ag business. Because the non-bank lending business remained in development, this change is not expected to have a significant adverse impact on the Company’s operations or financial results.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of the Company include all wholly and majority owned subsidiaries of the Company. The operations of Bloomia are included since the date of acquisition. Entities for which the Company owns an interest, does not consolidate, but exercises significant influence, are accounted for under the equity method of accounting and are included in equity method investments within the condensed consolidated balance sheets. All intercompany accounts and transactions have been eliminated. These 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 and 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 consolidated financial statements as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2024 (the Form 10-K). In the opinion of management, all adjustments (consisting of normal recurring accruals and other-than-normal adjustments as disclosed in Note 15 herein) considered necessary for a fair statement have been included. The accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited balance sheet as of December 31, 2023 contained in the Form 10-K; however, certain prior period amounts have been reclassified to conform to current period classification. Reclassifications had no material effect on prior year net income, net income (loss) per share, or stockholders’ equity.

The condensed consolidated results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2024 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2024, nor for any other future annual or interim period. The tulip sales business tends to be seasonal with first and second quarter being the strongest sales season. Accounts receivable and inventory balances are at their lowest levels in June and July following the strong sales season. Inventory balances peak in the first quarter ahead of the primary selling season.

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 (the “In-Store Marketing Business”). The operations of the In-Store Marketing Business are presented as discontinued operations. All prior periods presented have been restated to present the In-Store Marketing Business as discontinued operations.

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Recently Issued Accounting Pronouncements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires public companies to expand their income tax disclosures with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes and requires greater detail about significant reconciling items in the reconciliation. Additionally, the amendment requires disaggregated information pertaining to taxes paid, net of refunds received, for federal, state, and foreign income taxes. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued and allows for either a prospective or retrospective approach on adoption. The Company will not early adopt and is currently assessing the impact of ASU 2023-09 on its consolidated financial statements and related disclosures.

2. Significant Accounting Policies.

Use of Estimates. The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The key estimates made by management include the determination of fair values in conjunction with the acquisition of our majority interest in Bloomia, and the carrying value of inventories, right-of-use assets and lease liabilities, useful lives for property and equipment and intangible assets, and valuation of income taxes. Actual results could differ from these estimates.

Foreign Currency Transactions. The revenues of the Company and most of its subsidiaries are generated in U.S. dollars. In addition, most of the costs of the Company and most of its subsidiaries are incurred in U.S. dollars. The Company’s management has established that the U.S. dollar is the primary currency of the economic environment in which the Company and most of its subsidiaries operate. Thus, the functional currency of the Company and most of its subsidiaries is the U.S. dollar.

Transactions and balances that are denominated in currencies that differ from the functional currencies have been remeasured into U.S. dollars in accordance with principles set forth in Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters. At each balance sheet date, monetary items denominated in foreign currencies are translated at exchange rates in effect at the balance sheet date, while income and expenses are translated at average exchange rates for the periods presented. All exchange gains and losses from the remeasurement mentioned above are reflected in the condensed consolidated statements of operations as foreign exchange expenses or income, as appropriate.

For subsidiaries whose functional currency has been determined to be other than the U.S. dollar, assets and liabilities are translated at year-end exchange rates, and condensed consolidated statements of operations items are translated at average exchange rates prevailing during the year, and equity is translated at blended historical rates. Resulting translation differences are recorded as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity.

Accounts Receivable, Net. Accounts receivable are presented in the balance sheets at their outstanding balances net of the allowance for credit losses. These receivables are generally trade receivables due in one year or less or expected to be billed and collected within one year. The Company estimates credit losses on accounts receivable in accordance with ASC 326 Financial Instruments - Credit Losses. The Company measures the allowance for credit losses on trade receivables on a collective (pool) basis when similar risk characteristics exist. The estimate for allowance for credit losses is based on a historical loss rate for each pool. Management considers qualitative factors such as change in economic factors, regulatory matters, and industry trends to determine if an allowance should be further adjusted. At September 30, 2024, the Company’s allowance for credit losses is immaterial.

Inventories. Raw materials consist primarily of tulip bulbs, including freight and packaging supplies. Work-in-process consists of tulip stems and bulbs that have rooted. Inventories are stated at the lower of cost, as determined on the first-in, first-out method, or net realizable value. Finished goods and work-in-process include the inventory costs of raw materials, direct labor and normal manufacturing overhead. Abnormal amounts of spoilage are expensed as incurred and not included in overhead.

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Property and Equipment, Net. Property and equipment, net are stated at historical cost, less accumulated depreciation and amortization. Bushes refer to peony plants, which accumulate planting and development costs that are capitalized into their basis until they become commercially productive, at which point the asset begins depreciating, and future maintenance costs are expensed as incurred. Planting costs consist primarily of the costs to purchase and plant nursery stock. Development costs consist of cultivation, pruning, irrigation, labor, spraying and fertilization, and interest costs during the development period. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term (including renewals that are reasonably certain to occur) or the estimated useful lives of the improvements. The estimated useful lives of property and equipment are as follows:

|  | Estimated Useful Life |
Machinery and equipment |  | 5-20 years |
Leasehold improvements |  | 15 years |
Bushes |  | 7-10 years |
Vehicles |  | 5 years |
Furniture and fixtures |  | 5-7 years |

Long-Lived Assets Impairment Testing. Long-lived assets, which include property, plant, and equipment, finite-lived intangible assets subject to amortization, and right-of-use assets, are assessed for impairment whenever events or changes in circumstances such as asset utilization, physical change, legal factors or other matters indicate the carrying value of those assets may not be recoverable from future undiscounted cash flows. The impairment test involves comparing the carrying amount of each individual asset-group to the forecasted undiscounted future cash flows generated by that asset group. These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts. In the event the carrying amount of the asset exceeds the gross undiscounted future cash flows generated by that asset and the carrying amount is not considered recoverable, an impairment exists. An impairment loss is measured as the excess of an individual asset group’s carrying amount over its fair value and is recognized in the statement of operations in the period that the impairment occurs. The reasonableness of the useful lives of the asset and other long-lived assets is regularly evaluated. During the three and nine months ended September 30, 2024, and 2023, no impairment losses were identified.

Goodwill and Indefinite-lived Assets. Goodwill results from business combinations and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Annually, or if conditions indicate an additional review is necessary, the Company assesses qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and if it is necessary to perform the quantitative goodwill impairment test. The Company has one reporting unit. If the Company performs the quantitative test, it compares the carrying value of the reporting unit to an estimate of the reporting unit’s fair value to identify potential impairment. The fair value of each reporting unit is estimated using a discounted cash flow model. Where available, and as appropriate, comparable market multiples are also used to corroborate the results of the discounted cash flow models. In determining the estimated future cash flow, the Company considers and applies certain estimates and judgments, including current and market projected future levels of income based on management’s plans, business trends, prospects and economic conditions and market-participant considerations. If the estimated fair value of the reporting to unit is less than the carrying value, a goodwill impairment loss is recorded for the difference, up the amount of the total goodwill. During the three and nine months ended September 30, 2024, no impairment losses were identified.

Further, the Company recognized a trade name associated with the Bloomia acquisition that was determined to be an indefinite-lived intangible asset. Annually, or if conditions indicate an additional review is necessary, we test indefinite-lived trade names for impairment. We have the option to first assess qualitative factors to determine whether the fair value of a trade name is “more likely than not” less than its carrying value. If it is more likely than not that an impairment has occurred, we then perform the quantitative impairment test. If we perform the quantitative test, the carrying value of the asset is compared to an estimate of its fair value to identify impairment. The fair value is determined by the relief from royalty method, which requires significant judgment. Actual results may differ from assumed and estimated amounts utilized in the analysis. If we conclude an impairment exists, the asset’s carrying value will be written down to its fair value. During the three and nine months ended September 30, 2024, no impairment losses were identified.

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Equity-Method Investments. Investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over the investee. Under the equity method of accounting, the Company records its investments in equity-method investees in the consolidated balance sheets as equity-method investments and its share of investees’ earnings or losses together with other-than-temporary impairments in value, basis differences between the carrying amount and our ownership interest in the underlying net assets of the investee, and any gain or loss from the sale of an equity method investment as gain or loss on sale of equity investment in net income of unconsolidated investments in the consolidated statements of operations. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

Investments in equity-method investments and joint ventures of immaterial entities are estimated based upon the overall performance of the entity where financial results are not available on a timely basis.

Fair Value. FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” (ASC 820) establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

| · | Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
| · | Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
| · | Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The carrying amounts of certain financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other financial working capital items approximate their fair values at September 30, 2024 and December 31, 2023 due to their short-term nature and management’s belief that their carrying amounts approximate the amount for which the assets could be sold or the liabilities could be settled. The carrying amount of debt approximates fair value due to the debt’s variable market interest rate.

Revenue Recognition. The Company accounts for revenue in accordance with FASB Topic 606, “Revenue from Contracts with Customers,” (ASC 606), using the following steps:

| · | Identify the contract or contracts, with a customer;
| · | Identify the performance obligations in the contract;
| · | Determine the transaction price;
| · | Allocate the transaction price to performance obligations in the contract; and
| · | Recognize revenue when or as the Company satisfies a performance obligation.

The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; this occurs with the transfer of control of its tulips. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. Revenue from product sales is governed primarily by customer pricing and related purchase orders (“contracts”) which specify shipping terms and the transaction price. Contracts are at standalone pricing. The performance obligation in these contracts is determined by each of the individual purchase orders and the respective stated quantities, with revenue being recognized at a point in time when obligations under the terms of the agreement are satisfied. This generally occurs with the transfer of control of tulips to the customer and the product is delivered.

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The Company expenses the incremental costs of obtaining a contract, if the amortization period is one year or less. These costs are included in sales and marketing expense in the condensed consolidated statements of operations.

The following table presents revenue disaggregated by customer, as determined by the operational nature of their industry:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2024 |  |  | September 30, 2024 |
Supermarket |  | $ | 5,611,000 |  |  | $ | 28,766,000 |
Wholesaler |  |  | 792,000 |  |  |  | 2,078,000 |
Other |  |  | 225,000 |  |  |  | 737,000 |
|  | $ | 6,628,000 |  |  | $ | 31,581,000 |

During the nine months ended September 30, 2024, the Company had two customers that account for 10% or more of the total revenues. These two customers accounted for approximately 38% and 19% of revenues, respectively, for the nine months ended September 30, 2024. As of September 30, 2024, approximately $0.9 million was due from these two customers. The loss of a major customer could adversely affect the Company’s operating results and financial condition.

Cost of Sales. Cost of sales consists primarily of costs to procure, sort, pick, cool, and transport bulbs. Additionally, cost of sales includes labor and facility costs related to production operations.

Shipping and Handling. The Company’s shipping and handling costs include costs incurred with third-party carriers to transport products to customers. The costs of outbound freight are included in the cost of goods sold in the condensed consolidated statements of operations and comprehensive income (loss). For the three and nine months ended September 30, 2024, the costs of out-bound freight were approximately $421,000 and $1,872,000, respectively.

Advertising Costs. The Company expenses advertising costs as incurred. These costs are included within sales, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income (loss). Total advertising expense was approximately $18,000 and $27,000 for the three and nine months ended September 30, 2024, respectively.

Interest expense. For debt with variable rate interest, interest expense is recorded based on a weighted average effective interest rate method. The significant assumptions used in the weighted average estimate are the future debt balance and the length of time the debt will be outstanding. Paid in kind interest is not paid in cash and included in the long-term debt, net in the unaudited condensed consolidated balance sheets. Financing costs incurred as part of the acquisition of Bloomia are amortized and expense in interest expense in the unaudited condensed consolidated statements of operations.

Income Taxes. The Company uses the liability method to account for income taxes as prescribed by ASC 740. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. Deferred income tax assets and liabilities are adjusted to recognize the effects of changes in tax laws or enacted tax rates in the period during which they are signed into law. In determining the Company’s ability to realize its deferred tax assets, the Company considers any available tax planning strategies that could be implemented. Under ASC 740, a valuation allowance is required when it is more likely than not that all or some portion of the deferred tax assets will not be realized due to the inability to generate sufficient future taxable income of the correct character. Failure to achieve previously forecasted taxable income could affect the ultimate realization of deferred tax assets and could negatively impact the Company’s effective tax rate on future earnings.

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The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Interest income or expense/penalties attributable to the overpayment or underpayment, respectively, of income taxes is recognized as an element of our provision for income taxes.

As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed, and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, the Company records additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.

Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based awards at fair value at grant date. Restricted stock units and awards are valued at the closing market price of the Company’s stock on the date of the grant. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding several 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 months ended September 30, 2024, the Company issued 27,000 shares of restricted stock under the 2018 Equity Incentive Plan. The shares underlying the awards were assigned a grant date fair value of $5.64 per share, based on the stock price on the date of grant, and are scheduled to vest over three years. During the nine months ended September 30, 2023, no stock options or restricted stock were issued by the Company. The Company recorded total stock-based compensation expense of $36,000 and $43,000 for the nine months ended September 30, 2024 and 2023, respectively.

Net Income (Loss) per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding and excludes any dilutive effects of stock options and restricted stock units and awards. Diluted net income (loss) per share gives effect to all diluted potential common shares outstanding during the year.

In determining diluted net income (loss) per share, the Company considers whether the result of the incremental shares would be antidilutive. During the three and nine month period ended September 30, 2024, the Company was in a net loss position and the result of the potentially dilutive securities was determined to be antidilutive and therefore, no incremental shares are included in any of the per share calculations.

At September 30, 2024, no options were outstanding. At September 30, 2023, options to purchase 14,086 shares of common stock with a weighted average exercise price of $14.17 were outstanding and determined to be antidilutive.

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Weighted average common shares outstanding for the three and nine months ended September 30, 2024, and 2023 were as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Denominator for basic net income (loss) per share - weighted average shares |  |  | 1,770,000 |  |  |  | 1,785,000 |  |  |  | 1,770,000 |  |  |  | 1,793,000 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock options and restricted stock units |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Denominator for diluted net income (loss) per share - weighted average shares |  |  | 1,770,000 |  |  |  | 1,785,000 |  |  |  | 1,770,000 |  |  |  | 1,793,000 |

3. Bloomia Acquisition

On February 22, 2024, the Company completed the acquisition of a majority interest in Bloomia and its subsidiaries (the “Acquisition”). The Acquisition was completed by the Company through its wholly owned subsidiaries, Tulp 24.1 and Tulipa Acquisitie Holding B.V. (“Tulipa”), pursuant to an Agreement for the Sale and Purchase of Shares by and among Tulp 24.1, Tulipa, Botman Bloembollen B.V., W.F. Jansen (“Jansen”), and H.J. Strengers, and Lendway, as the Guarantor. Jansen will continue to serve as chief executive officer of Bloomia following the Acquisition. As a result of the Acquisition, Tulp 24.1 became the holder of 100% of the ownership interests of Bloomia.

The acquisition has been accounted for in accordance with ASC Topic 805, “Business Combinations,” using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price was allocated to the net identifiable tangible and intangible assets of Bloomia acquired, based on their fair values at the date of the acquisition.

The acquisition was funded through a combination of debt and cash on hand. The total consideration transferred for the Bloomia acquisition was $53,360,000. Consideration comprised of $34,919,000 of cash paid, $15,451,000 of seller bridge loans in lieu of cash, and $2,990,000 of equity issued of Tulp 24.1 which is reflected as noncontrolling interest within these condensed consolidated financial statements. Following the noncontrolling equity issued, the Company owns 81.4% of Tulp 24.1 and the CEO of Bloomia owns the remaining 18.6%. Refer to Note 9 for further discussion on the debt used to finance the Acquisition.

Provisional fair value measurements were made for acquired assets and liabilities, and adjustments to those measurements may be made in subsequent periods as information necessary to complete the fair value analysis is obtained. The fair value measurements associated with working capital and the allocation of certain intangible assets are preliminary as of the date these financial statements are available to be issued. We expect to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

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The preliminary allocation of the purchase price to assets acquired and liabilities assumed is as follows:

Fair value of purchase consideration |  |  |
Cash consideration |  | $ | 34,919,000 |
Equity in subsidiary issued (noncontrolling interest) |  |  | 2,990,000 |
Seller bridge loans |  |  | 15,451,000 |
Total fair value of consideration |  | $ | 53,360,000 |
Fair value of assets acquired and liabilities assumed: |  |  |  |
Cash and cash equivalents |  | $ | 739,000 |
Accounts receivable |  |  | 3,430,000 |
Inventories |  |  | 12,493,000 |
Prepaid and other |  |  | 2,509,000 |
Property and equipment |  |  | 11,740,000 |
Intangible assets |  |  | 26,870,000 |
Equity method investment |  |  | 167,000 |
Finance lease - right of use assets |  |  | 22,000 |
Operating lease - right of use assets |  |  | 34,289,000 |
Other assets |  |  | 358,000 |
Total assets acquired |  |  | 92,617,000 |
Accounts payable |  |  | 2,064,000 |
Accrued expenses |  |  | 3,066,000 |
Finance lease liabilities - current |  |  | 13,000 |
Operating lease liabilities - current |  |  | 945,000 |
Finance lease liabilities - long-term |  |  | 9,000 |
Operating lease liabilities - long-term |  |  | 33,344,000 |
Deferred tax liabilities |  |  | 10,290,000 |
Total liabilities assumed |  |  | 49,731,000 |
Net identifiable assets acquired |  |  | 42,886,000 |
Goodwill |  |  | 10,474,000 |
Total consideration transferred |  | $ | 53,360,000 |

The goodwill recognized is primarily attributable to the growth potential of the Company and is not deductible for tax purposes. The fair value of customer relationships was estimated using a discounted present value income approach. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. Indications of value are developed by discounting future net cash flows to their present value at market-based rates of return. The fair value of the trade names was estimated using an income approach, specifically known as the relief from royalty method. The relief from royalty method is based on the hypothetical royalty stream that would be received if the Company were to license the trade name and was based on expected revenues. The useful life of the customer relationships was determined considering the period of expected cash flows used to measure the fair value of the intangible assets adjusted as appropriate for the entity-specific factors including legal, regulatory, contractual, competitive, economic or other factors that may limit the useful life of the customer relationships. The issued equity of the subsidiary, now reflected as noncontrolling interest was valued considering the total value of the acquired company and comparing that to the rollover value of the shares being converted.

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Revenue, net and net loss before taxes for Bloomia since the date of acquisition included in the condensed consolidated statements of operations were approximately $6,628,000 and $910,000, respectively for three months ended September 30, 2024. Revenue, net and net income before taxes for Bloomia since the date of acquisition included in the condensed consolidated statements of operations were approximately $31,581,000 and $1,745,000 for the nine months ended September 30, 2024, respectively.

Unaudited pro forma information has been prepared as if the acquisition had taken place on January 1, 2023. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transaction actually taken place on January 1, 2023, and the unaudited pro forma information does not purport to be indicative of future financial operating results. The unaudited pro forma condensed consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquisitions. In accordance with ASC 270-10, the Company is unable to provide unaudited pro forma information for revenue and net earnings for the three and nine months ended September 30, 2023 due to lack of available information during the period prior to ownership. Unaudited pro forma information for the three and nine months ended September 30, 2024, excluding the impact of debt and intangible asset amortization, is as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2024 |  |  | September 30, 2024 |
Revenue, net |  | $ | 6,628,000 |  |  | $ | 33,955,055 |
Net loss attributable to Lendway |  |  | (1,125,000 | ) |  |  | (2,552,000 | )

The Company incurred approximately $1,542,000 of acquisition-related costs that were expensed during the three months ended March 31, 2024 and an additional $542,000 in integrations costs that were expensed in the nine months ended September 30, 2024. These costs are included in sales, general and administrative expenses in the condensed consolidated statements of operations.

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4. 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 $3,500,000 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. The final purchase adjustment for the net balance was to reduce the cash consideration by $1,500,000, 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 and is included in Accounts receivable, net on the condensed consolidated balance sheets. 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 sheets were as follows:

|  | September 30, 2024 |  |  | December 31, 2023 |
Current Assets: |  |  |  |  |  |
Accounts receivable, net |  | $ | - |  |  | $ | 292,000 |
Current assets related to discontinued operations |  | $ | - |  |  | $ | 292,000 |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | - |  |  | $ | 7,000 |
Accrued sales tax |  |  | 40,000 |  |  |  | 169,000 |
Other accrued liabilities |  |  | 15,000 |  |  |  | 81,000 |
Current liabilities related to discontinued operations |  | $ | 55,000 |  |  | $ | 257,000 |

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2023 |  |  | September 30, 2023 |
Net service revenues |  | $ | 1,976,000 |  |  | $ | 21,018,000 |
Cost of services |  |  | 1,568,000 |  |  |  | 16,067,000 |
Gross Profit |  |  | 408,000 |  |  |  | 4,951,000 |
Operating Expenses: |  |  |  |  |  |  |  |
Selling |  |  | 410,000 |  |  |  | 1,135,000 |
Marketing |  |  | 210,000 |  |  |  | 806,000 |
General and administrative |  |  | 142,000 |  |  |  | 642,000 |
Total Operating Expenses |  |  | 762,000 |  |  |  | 2,583,000 |
Operating (Loss) Income |  | $ | (354,000 | ) |  | $ | 2,368,000 |
Other Income |  |  | 21,000 |  |  |  | 54,000 |
(Loss) Income from discontinued operations |  | $ | (333,000 | ) |  | $ | 2,422,000 |
Gain from sale of discontinued operations before income taxes |  |  | 3,044,000 |  |  |  | 3,044,000 |
Income tax expense |  |  | 74,000 |  |  |  | 74,000 |
Gain from the sale of discontinued operations, net of tax |  | $ | 2,970,000 |  |  | $ | 2,970,000 |

Results of discontinued operations are summarized below:

For the three and nine months ended September 30, 2024, the Company recognized approximately $66,000 and $202,000, respectively, of benefit in sales, general and administrative expense of discontinued operations from the reduction in the accrual for sales tax due to the expiration of the statute of limitations. For the nine months ended September 30, 2024, the Company generated $292,000 of cash from discontinued operations.

5. Inventories.

Inventories consisted of the following at:

|  | September 30, 2024 |
Finished goods |  | $ | 358,000 |
Work-in-process |  |  | 1,486,000 |
Raw materials and packaging supplies |  |  | 13,686,000 |
Total inventories |  | $ | 15,530,000 |
Less: provision |  |  | (40,000 | )
Inventories, net |  | $ | 15,490,000 |

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6. Property and Equipment.

Property and equipment, net consisted of the following at:

|  | September 30, 2024 |
Machinery and equipment |  | $ | 11,284,000 |
Leasehold improvements |  |  | 113,000 |
Bushes |  |  | 489,000 |
Vehicles |  |  | 576,000 |
Furniture and fixtures |  |  | 220,000 |
Property and equipment, gross |  |  | 12,682,000 |
Less: accumulated depreciation |  |  | (1,144,000 | )
Property and equipment, net |  | $ | 11,538,000 |

At September 30, 2024, property and equipment, net of $925,000 were located outside of the U.S. Included in machinery and equipment is $55,000 of equipment funded by a financing lease. The financing lease is included in financing leases on the condensed consolidated balance sheet. Also included in machinery and equipment is $100,000 of spare parts that are not currently in use and not being depreciated.

Depreciation expense was $436,000 and $1,002,000 for the three and nine months ended September 30, 2024. Depreciation of $408,000 and $28,000 were recorded within cost of sales and sales, general and administrative expenses, respectively, for the three months ended September 30, 2024. Depreciation of $908,000 and $94,000 were recorded within cost of sales and sales, general and administrative expenses, respectively, for the nine months ended September 30, 2024. Depreciation expense for the three and nine months ended September 30, 2023 was $10,000 and $36,000, respectively, which was recorded in sales, general and administrative expenses.

7. Equity Method Investment.

Araucanía Flowers SA (“Araucania”) is based in Chile and serves as a marketing arm for the Company to export its crops to Latin-America countries. Araucanía has two other shareholders that hold 70% of its aggregate issued and outstanding shares. At September 30, 2024, the Company had a 30% equity interest in Araucania with a carrying amount of approximately $167,000. For the period ended September 30, 2024, the equity in net income of Araucania was approximately $nil. As of September 30, 2024, the Company had a note receivable from Araucanía with a balance of $369,000 which is included in long-term receivable in the accompanying condensed consolidated balance sheet.

Bloomia had a 50% ownership interest in Horti-Group USA LLC (“Horti-Group”). Horti-Group operates a 45-acre facility near Washington D.C. that Bloomia utilizes to grow and distribute its tulips to North American customers. On February 9, 2023, Bloomia sold its interest in Horti-Group to V-Maxx for a sale price of $2,500,000. The sale price was seller-financed via the issuance of an interest-free loan from Fresh Tulips to V-Maxx with an original principal amount $2,500,000. The loan to V-Maxx is to be repaid in 17 monthly installments of $150,000 for the first 16 months and $100,000 for the last month, with the first payment on April 1, 2023, and the last payment on August 1, 2024. The Company does not receive cash from V-Maxx, instead the $150,000 per month is applied to the rent owed to Horti-Group and is reflected in Noncash operating lease expense as an add back to net loss in the condensed consolidated statement of cash flows. At September 30, 2024, the balance of the loan was zero.

8. Goodwill and Other Intangible Assets.

The following table summarizes the changes in goodwill:

Balance as of January 1, 2024 |  | $ | - |
Goodwill resulting from the Bloomia Acquisition |  |  | 10,122,000 |
Measurement period adjustment |  |  | 352,000 |
Balance as of September 30, 2024 |  | $ | 10,474,000 |

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During the nine months ended September 30, 2024, the Company recorded a measurement period adjustment which increased goodwill by $352,000. This measurement period adjustment resulted from a remeasurement of acquired payroll taxes payable, other accruals, inventory and property and equipment.

Other intangible assets and related amortization are as follows at September 30, 2024:

|  | Carrying |  |  | Useful Life |  |  | Accumulated |  |  | Net Carrying |
|  | Amount |  |  | (Years) |  |  | Amortization |  |  | Amount |
Tradename |  | $ | 8,570,000 |  |  | Indefinite |  |  | $ | - |  |  | $ | 8,570,000 |
Customer relationships |  |  | 18,300,000 |  |  |  | 12 |  |  |  | 920,000 |  |  |  | 17,380,000 |
|  | $ | 26,870,000 |  |  |  |  |  |  | $ | 920,000 |  |  | $ | 25,950,000 |

For the three and nine months ended September 30, 2024, amortization of intangible assets expensed to operations was $381,000 and $920,000, respectively. The weighted average remaining amortization period for intangible assets as of September 30, 2024 is approximately 11.4 years.

Remaining estimated aggregate annual amortization expense is as follows at:

|  | September 30, 2024 |
Remainder of 2024 |  | $ | 381,000 |
2025 |  |  | 1,525,000 |
2026 |  |  | 1,525,000 |
2027 |  |  | 1,525,000 |
2028 |  |  | 1,525,000 |
Thereafter |  |  | 10,899,000 |
Total |  | $ | 17,380,000 |

9. Long-term d ebt, net.

The components of debt consisted of the following at:

|  | September 30, 2024 |
Credit Agreement - term loan |  | $ | 17,550,000 |
Notes payable |  |  | 12,750,000 |
Credit Agreement - revolving credit facility |  |  | 5,991,000 |
Paid in kind interest (PIK) |  |  | 928,000 |
Machinery financing loan (1) |  |  | 156,000 |
|  | $ | 37,375,000 |
Less: unamortized debt issuance costs |  |  | (334,000 | )
Total debt |  | $ | 37,041,000 |
PIK included in accrued expenses and other current liabilities |  |  | (160,000 | )
Less current maturities |  |  | (2,271,000 | )
Long term debt, net of current maturities |  | $ | 34,610,000 |

| (1) | In the three months ended September 30, 2024, the Company entered into a financing arrangement to finance the purchase of machinery. This transaction represented a failed sale leaseback with the associated equipment recorded in property and equipment, net and the proceeds received recorded as debt on the Company’s condensed consolidated balance sheet.

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To finance the Bloomia acquisition, the Company entered into a revolving credit and term loan agreement (the “Credit Agreement”), with Tulp 24.1 as the borrower (the “Borrower”) for a $18,000,000 term loan and a $6,000,000 revolving credit facility. On October 16, 2024, the Company amended the credit agreement (Amended Credit Agreement) to, among other things, temporarily increase the borrowing capacity under the revolving credit facility to $8,000,000. The revolving credit facility may be used by the Company for general business purposes and working capital, subject to availability under a borrowing base consisting of 80% of eligible accounts receivable and generally 50% of eligible inventory. Borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to Term (Secured Overnight Financing Rate) SOFR for an interest period of one month plus 3.0%. In addition to paying interest on the outstanding principal under the Amended Credit Agreement, the Borrower is required to pay a commitment fee of 0.50% on the unutilized commitments under the revolving credit facility. The obligations under the Amended Credit Agreement are secured by substantially all of the personal property of the Borrower and its subsidiaries. The Company provided an unsecured guaranty of the obligations of the Borrower under the Amended Credit Agreement. The Amended Credit Agreement requires the Borrower and its subsidiaries to maintain (a) a minimum fixed charge coverage ratio of not less than 1.25 to 1.00 and (b) a maximum senior cash flow leverage ratio of 3.75 to 1.0 until September 30, 2024, stepping down to 2.00 to 1.00 on December 31, 2027, until the maturity date of the Amended Credit Agreement. As of September 30, 2024, the Company was in compliance with these financial covenants. The Amended Credit Agreement contains other customary affirmative and negative covenants, including covenants that restrict the ability of the Borrower and its subsidiaries to incur additional indebtedness, dispose of significant assets, make distributions or pay dividends, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions or grant liens on its assets, subject to certain limitations. The Amended Credit Agreement also contains customary events of default, the occurrence of which would permit the lenders to terminate their commitments and accelerate loans under the Amended Credit Agreement, including failure to make payments under the credit facility, failure to comply with covenants in the Amended Credit Agreement and other loan documents, cross default to other material indebtedness of the Borrower or any of its subsidiaries, failure of the Borrower or any of its subsidiaries to pay or discharge material judgments, bankruptcy of the Borrower or any of its subsidiaries, and change of control of the Company. The term loan is scheduled to be repaid in quarterly installments of $450,000, commencing on June 30, 2024 with a scheduled maturity date of February 20, 2029. The term loan is subject to additional principal payments under the annual 50% of excess cash flow provision (waived if total net cash flow leverage is less than 2.0x as of fiscal year-end). The scheduled maturity date of the revolving credit facility is February 20, 2029.

As part of the financing of the Bloomia acquisition, the Company entered into notes payable with the sellers. Notes payable for $12,750,000 have a term of five years with a scheduled maturity date of March 24, 2029. The notes payable are subject to additional principal payments based on “excess cash flow” (“excess cash flow” has the same definition as “excess cash flow” used to determine additional principal payments for the term loan under the Credit Agreement). The notes payable initially bear interest at 8% per annum for the first year that increase annually by 2 percentage points. Interest on loans made under the notes payable is payable “in kind” (“PIK”). Interest that is payable “in-kind” is added to the aggregate principal amount on the applicable interest payment date. Additionally, the Company entered into short-term notes payable with the sellers. The short-term notes payable of $2,700,000 was paid in full as of June 30, 2024.

As of September 30, 2024, there was $334,000 of debt issuance costs related to the term loan, net of amortization of $51,000 which has been presented as a direct deduction from long-term debt in the accompanying condensed consolidated balance sheet. As of September 30, 2024, there was $113,000 of deferred financing costs related to the revolving credit facility, net of amortization of $15,000, which has been presented within prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.

The Company incurred $419,000 and $883,000 of interest expense on the term loans and revolving facility in the three and nine months ended September 30, 2024, respectively. The Company incurred non-cash paid-in-kind interest of $392,000 and $928,000 on the seller notes facility in the three and nine months ended September 30, 2024, respectively. Term loan, revolving credit facility and paid-in-kind interest are included in interest expense (income), net on the condensed consolidated statements of operations and comprehensive income (loss).

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The combined aggregate maturities for each of the five years following September 30, 2024 are as follows:

Remainder of 2024 (1) |  | $ | 905,000 |
2025 |  |  | 1,981,000 |
2026 |  |  | 1,823,000 |
2027 |  |  | 1,824,000 |
2028 |  |  | 1,826,000 |
2029 |  |  | 29,016,000 |
|  | $ | 37,375,000 |

| (2) | The September 2024 installment of the term loan was paid in October 2024 and is included in the current portion of long-term debt on the condensed consolidated balance sheet.

10. Related Party Note Payable

On August 15, 2024, the Company entered into an unsecured Delayed Draw Term Note (the “Note”) with Air T Inc. (Air T) pursuant to which Air T has agreed to advance from time to time until August 15, 2026, but not on a revolving basis, up to $2.5 million to fund the Company’s operations. Air T Inc. beneficially owns greater than 10% of our outstanding Common Stock and is a member of a group of stockholders that collectively owns approximately 40% of our outstanding common stock. As of September 30, 2024, the Company had $2,000,000 outstanding under the Note and had incurred $8,000 of interest. Amounts outstanding under the Note bear interest at a fixed rate of 8.0%, which may be increased by 3.0% upon certain events of default. The entire principal amount outstanding on the Loans, together with accrued and unpaid interest thereon as set forth below, shall be due and payable in full on the earlier of (i) August 15, 2029, (ii) Borrower’s receipt of a written demand by the Lender delivered on or after February 15, 2026, and (iii) such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise (the “Maturity Date”). The Borrower may prepay any Loan outstanding hereunder, together with accrued and unpaid interest on such Loan, at any time without prepayment or penalty.

On September 27, 2024, we entered into an Amended and Restated Delayed Draw Term Note (the “Amended Note”) with Air T pursuant to which Air T has agreed to advance up to an additional $1.0 million from time to time until August 15, 2026, but not on a revolving basis. The Amended Note provides for total borrowing of up to $3.5 million to fund the Company’s operations. As previously disclosed, amounts outstanding under the Amended Note bear interest at a fixed rate of 8.0%, which may be increased by 3.0% upon certain events of default. The Amended Note remains scheduled to mature and all principal and accrued but unpaid interest will become due on August 15, 2029, subject to Air T’s right to demand payment on or after February 15, 2026. No closing or origination fees will be paid to the Air T.

11. Leases.

The Company is party to leasing contracts in which the Company is the lessee. These lease contracts are classified as either operating or finance leases. The Company’s lease contracts include land, buildings, and equipment. Remaining lease terms range from 1 to 15 years with various term extension options available. The Company includes optional extension periods and early termination options in its lease term if it is reasonably likely that the Company will exercise an option to extend or terminate early.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term, at the later of the commencement date or business combination date. Because most of the Company’s leases do not provide an implicit rate of return, the discount rate is based on the collateralized borrowing rate of the Company, on a portfolio basis.

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The weighted average remaining lease term and weighted average discount rate is as follows at:

|  | September 30, 2024 |
Weighted average remaining lease term (years) |  |  |
Finance leases |  |  | 4.31 |
Operating leases |  |  | 14.11 |
Weighted average discount rate applied |  |  |  |
Finance leases |  |  | 5.40 | %
Operating leases |  |  | 8.22 | %

The components of lease expense from continuing operations are as follows within our condensed consolidated statements of operations and comprehensive income (loss):

|  | Three Months Ended September 30, 2024 |  |  | Nine Months Ended September 2024 |
Operating lease expense: |  |  |  |  |  |
Operating lease cost |  | $ | 1,061,000 |  |  | $ | 2,565,000 |
Short-term variable lease cost (1) |  |  | 67,000 |  |  |  | 277,000 |
Finance lease expense: |  |  |  |  |  |  |  |
Finance lease cost - depreciation |  |  | 8,000 |  |  |  | 11,000 |
Total lease expense |  | $ | 1,136,000 |  |  | $ | 2,853,000 |

| (1) | In the Form 10-Q for the second quarter, management incorrectly disclosed the short-term variable lease expense for the six months ended June 30, 2024. Management corrected the disclosure above. There was no impact on the condensed consolidated statement of operations in either period.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2023 |  |  | September 2023 |
Operating lease expense: |  |  |  |  |  |
Related party lease |  | $ | 1,000 |  |  | $ | 2,000 |
Other |  |  | 5,000 |  |  |  | 13,000 |
Total lease expense |  | $ | 6,000 |  |  | $ | 15,000 |
Lease expense from discontinued operations |  | $ | 6,000 |  |  | $ | 15,000 |

Supplemental cash flow information related to leases where the Company is the lessee is as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2024 |  |  | September 2024 |
Operating cash flows from operating leases |  | $ | 927,000 |  |  | $ | 2,155,000 |
Financing cash flows from finance leases |  |  | 8,000 |  |  |  | 11,000 |
Leased assets obtained in exchanged for operating lease liabilities |  |  | - |  |  |  | 34,289,000 |
Leased assets obtained in exchange for finance lease liabilities |  |  | 62,000 |  |  |  | 84,000 |

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As of September 30, 2024, the maturities of the operating and finance lease liabilities are as follows:

Year ending December 31, |  | Operating Leases |  |  | Finance Leases |
remainder of 2024 |  | $ | 926,000 |  |  | $ | 7,000 |
2025 |  |  | 3,770,000 |  |  |  | 25,000 |
2026 |  |  | 3,842,000 |  |  |  | 14,000 |
2027 |  |  | 3,919,000 |  |  |  | 14,000 |
2028 |  |  | 3,809,000 |  |  |  | 14,000 |
2029 |  |  | 3,827,000 |  |  |  | 9,000 |
Thereafter |  |  | 38,081,000 |  |  |  | - |
Total Lease Payments |  |  | 58,174,000 |  |  |  | 83,000 |
Less discount to PV |  |  | (24,403,000 | ) |  |  | (9,000 | )
Liability balance |  | $ | 33,771,000 |  |  | $ | 74,000 |

12. Income Taxes.

For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of 33.5% and 26.6%, respectively on loss from continuing operations. The rates differ from the federal statutory rate of 21% due to state taxes of 4.7%, valuation allowance change of 9.3% and nondeductible transaction costs and other permanent items of (8.4)%. For the three and nine months ended September 30, 2023, the Company recorded an income tax expense of 0.6% and 0.1% on loss from continuing operations before income taxes. The rate differs from the federal statutory rate of 21% due to state taxes of 3.5%, valuation allowance change of (24.5)% and other permanent items of 0.1%.

For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of $736,000 and $1,284,000 on the loss from continuing operations before income taxes. The overall benefit of $1,284,000 includes a $451,000 benefit for the reversal of the valuation allowance on federal deferred tax assets. During the three months ended March 31, 2024, the Company established deferred tax liabilities related to the acquisition in the majority ownership of Bloomia. The Company anticipates that the deferred tax liabilities will result in future taxable income that will allow for the realization of the federal deferred tax assets.

As of September 30, 2024, and December 31, 2023, the Company had unrecognized tax benefits totaling $35,000 and $42,000, respectively, including interest, which relates to state nexus issues. The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $35,000.

13. Commitments and Contingencies.

Litigation. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

In the ordinary course of the business, the Company is subject to periodic legal or administrative proceedings. As of September 30, 2024, the Company was not involved in any material claims or legal actions which, in the opinion of management, the ultimate disposition would have a material adverse effect on the Company’s condensed consolidated financial position, results of operations, or liquidity.

Purchase Obligation. On July 1, 2023 the Company entered into an obligation with a third-party to purchase 25% of their annual production of tulip bulbs through 2028 for $1,650,000 annually, totaling $8,000,000 over the duration of the agreement. In addition, the Company entered into a separate agreement with the same party to supply tulips to that party over a three-year period for a total of $360,000. The Company will be paid in three sums of $120,000 beginning on March 1, 2026, with the final payment to be received on March 1, 2028.

Other than this obligation, the Company has not had any material service or supply agreements that obligate the Company to make payments to vendors for an extended period of time.

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14. Employee Benefit Plans.

For all Dutch employees, the Company participates in defined contribution pension plans with an independent insurance company. Defined contributions are expensed in the year in which the related employee services are rendered. The Company makes contributions on behalf of all Dutch employees of which $21,000 and $51,000 were made and expensed for the three and nine months ended September 30, 2024, respectively.

15. Revision of first and second quarter 2024 unaudited results:

During the third quarter ended September 30, 2024, the Company identified certain misstatements in the first and second quarter consolidated financial statements. The Company assessed the applicable guidance issued by the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) and concluded these misstatements were not material, individually or in the aggregate, to the Company’s unaudited condensed consolidated financial statements for the aforementioned interim periods. However, to facilitate comparisons among periods, the Company has decided to revise its previously issued first and second quarter unaudited condensed consolidated financial information. The following tables present the impact of the errors on the previously reported condensed consolidated financial statements:

|  | Three Months Ended March 31, 2024 |
|  | As Previously Reported |  |  | Adjustment |  |  | As Revised |
Cost of goods sold (1) |  | $ | 6,139,000 |  |  | $ | 150,000 |  |  | $ | 6,289,000 |
Loss from continuing operations before income taxes |  |  | (1,683,000 | ) |  |  | 150,000 |  |  |  | (1,833,000 | )
Net loss from continuing operations |  |  | (1,336,000 | ) |  |  | 150,000 |  |  |  | (1,486,000 | )
Net (loss) income including noncontrolling interest |  |  | (1,264,000 | ) |  |  | 150,000 |  |  |  | (1,414,000 | )
Net (loss) income attributable to Lendway, Inc. |  |  | (1,041,000 | ) |  |  | 122,000 |  |  |  | (1,163,000 | )
Net (loss) income attributable to noncontrolling interest |  |  | (223,000 | ) |  |  | 28,000 |  |  |  | (251,000 | )
Comprehensive (loss) income attributable to Lendway, Inc. |  |  | (1,038,000 | ) |  |  | 122,000 |  |  |  | (1,160,000 | )
Net (loss) income per basic and diluted share attributable to Lendway, Inc. |  | $ | (0.73 | ) |  | $ | 0.07 |  |  | $ | (0.80 | )
Note receivable |  | $ | 700,000 |  |  | $ | (150,000 | ) |  | $ | 550,000 |

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|  | Three Months Ended June 30, 2024 |
|  | As Previously Reported |  |  | Adjustment |  |  | As Revised |
Revenue (2) |  | $ | 16,780,000 |  |  | $ | 140,000 |  |  | $ | 16,920,000 |
Cost of goods sold (3) |  |  | 12,803,000 |  |  |  | 211,000 |  |  |  | 13,014,000 |
Selling, general and administrative expenses (4) |  |  | 4,095,000 |  |  |  | (354,000 | ) |  |  | 3,741,000 |
Loss from continuing operations before income taxes |  |  | (1,082,000 | ) |  |  | (283,000 | ) |  |  | (799,000 | )
Net loss from continuing operations |  |  | (881,000 | ) |  |  | (283,000 | ) |  |  | (598,000 | )
Net (loss) income including noncontrolling interest |  |  | (817,000 | ) |  |  | (283,000 | ) |  |  | (534,000 | )
Net (loss) income attributable to Lendway, Inc. |  |  | (745,000 | ) |  |  | (230,000 | ) |  |  | (515,000 | )
Net (loss) income attributable to noncontrolling interest |  |  | (72,000 | ) |  |  | (53,000 | ) |  |  | (19,000 | )
Comprehensive (loss) income including noncontrolling interest |  |  | (702,000 | ) |  |  | (283,000 | ) |  |  | (419,000 | )
Comprehensive (loss) income attributable to Lendway, Inc. |  |  | (710,000 | ) |  |  | (230,000 | ) |  |  | (480,000 | )
Net (loss) income per basic and diluted share attributable to Lendway, Inc. |  | $ | (0.42 | ) |  | $ | (0.13 | ) |  | $ | (0.29 | )
Accounts receivable, net |  | $ | 3,306,000 |  |  | $ | 140,000 |  |  | $ | 3,446,000 |
Inventories, net |  |  | 6,973,000 |  |  |  | (211,000 | ) |  |  | 6,762,000 |
Accrued expenses and other current liabilities |  |  | 2,092,000 |  |  |  | (354,000 | ) |  |  | 1,738,000 |
Note receivable (5) |  |  | 250,000 |  |  |  | (150,000 | ) |  |  | 100,000 |

|  | Six Months Ended June 30, 2024 |
|  | As Previously Reported |  |  | Adjustment |  |  | As Revised |
Revenue |  | $ | 24,813,000 |  |  | $ | 140,000 |  |  | $ | 24,953,000 |
Cost of goods sold (3) |  |  | 18,942,000 |  |  |  | 361,000 |  |  |  | 19,303,000 |
Selling, general and administrative expenses (4) |  |  | 7,483,000 |  |  |  | (354,000 | ) |  |  | 7,129,000 |
Loss from continuing operations before income taxes |  |  | (2,765,000 | ) |  |  | (133,000 | ) |  |  | (2,632,000 | )
Net loss from continuing operations |  |  | (2,217,000 | ) |  |  | (133,000 | ) |  |  | (2,084,000 | )
Net (loss) income including noncontrolling interest |  |  | (2,081,000 | ) |  |  | (133,000 | ) |  |  | (1,948,000 | )
Net (loss) income attributable to Lendway, Inc. |  |  | (1,786,000 | ) |  |  | (108,000 | ) |  |  | (1,678,000 | )
Net (loss) income attributable to noncontrolling interest |  |  | (295,000 | ) |  |  | (25,000 | ) |  |  | (270,000 | )
Comprehensive (loss) income including noncontrolling interest |  |  | (1,740,000 | ) |  |  | (133,000 | ) |  |  | (1,607,000 | )
Comprehensive (loss) income attributable to Lendway, Inc. |  |  | (1,749,000 | ) |  |  | (108,000 | ) |  |  | (1,641,000 | )
Net (loss) income per basic and diluted share attributable to Lendway, Inc. |  | $ | (1.01 | ) |  | $ | (0.06 | ) |  | $ | (0.95 | )

| (1) | The Company did not record non-cash rent expense for the month of March 2024. This adjustment impacts the three months ended March 31, 2024 and the six months ended June 30, 2024.
| (2) | The Company identified a timing issue whereby product received by the customer before June 30, 2024 was recorded in July 2024, resulting in an understatement of revenue and cost of good sold in the three and six months ended June 30, 2024.
| (3) | Based on an inventory count performed in the third quarter of 2024, management noted the inventory balance at June 30, 2024 was overstated, which results in cost of goods sold being understated.
| (4) | Management over accrued for certain expenses resulting in an overstatement of selling, general and administrative costs in the three and six months ended June 30, 2024.
| (5) | Rent expense was properly stated in the three months ended June 30, 2024, but the note was overstated as of June 30, 2024 due to non-cash rent not being recorded in March 2024.

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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 condensed consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those in such forward-looking statements as a result of many factors, including those discussed in “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 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, 2023, our Current Reports on Form 8-K and our other SEC filings.

Company Overview

The Company is a specialty agricultural company focused on making and managing its agricultural investments in the United States and internationally.

In August 2023, the Company completed the sale of its In-Store Marketing Business for gross proceeds of $3.5 million (See Note 4 in the condensed consolidated financial statements). The operations of the In-Store Marketing Business are presented as discontinued operations. All prior periods presented have been restated to also present the In-Store Marketing Business as discontinued operations.

On February 22, 2024, the Company acquired majority ownership in Bloomia B.V. and its subsidiaries (“Bloomia”). Bloomia produces and sells fresh cut tulips.

In April 2023, the Company began the development of a non-bank lending business, through the hiring of a Senior Vice President of Lending, who later became our Chief Executive Officer. The Company met with a number of prospects for loan originations and/or purchases and deals were negotiated, but none reached execution. With the Company’s decision to allocate capital to the Bloomia acquisition, significantly less capital was available for the lending business in the near-term. Promptly after receiving a notice of resignation from the Company’s then-serving Chief Executive Officer in June 2024, our Board of Directors reexamined the Company’s strategic position and prospects. Primarily because the departing Chief Executive Officer represented nearly all of the Company’s knowledge and expertise relating to the purchase of existing loans and/or origination and funding of new loans, the Company has determined to focus solely on the ag business. Because the non-bank lending business remained in development, this change is not expected to have a significant adverse impact on the Company’s operations or financial results.

Bloomia Business

Bloomia purchases tulip bulbs, hydroponically grows tulips from the bulbs, and sells the stems to retail stores. Bloomia is a leading producer of fresh cut tulips in the United States, nurturing over 75 million stems annually. Net sales (unaudited) of Bloomia for the twelve months ended December 31, 2023 and 2022 were approximately $45 million and $43 million, respectively. Bloomia was founded in the Netherlands and is now strategically positioned in the United States, Netherlands, South Africa and Chile. Bloomia has relationships with prominent U.S. mass market retailers.

The Company acquired Bloomia for total consideration of $53,360,000. Consideration was comprised of $34,919,000 of cash paid, $15,451,000 of seller bridge loans in lieu of cash, and $2,990,000 of equity issued of Tulp 24.1 which is reflected as noncontrolling interest within these condensed consolidated financial statements. The acquisition was funded through a combination of debt and cash on hand.

The tulip sales business tends to be seasonal with spring being the strongest sales season. Accounts receivable and inventory balances are at their lowest levels in the summer following the strong spring sales season. Inventory balances peak prior to the spring season.

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Former Lending Business

The Company had previously planned to also develop a non-bank lending business via its wholly owned subsidiary, Farmland Credit, Inc. (“FCI”), and FCI’s subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC. Promptly after receiving a notice of resignation from the Company’s then-serving Chief Executive Officer in June 2024, our Board of Directors reexamined the Company’s strategic position and prospects. Primarily because the now departed Chief Executive Officer represented nearly all the Company’s knowledge and expertise relating to the purchase of existing loans and/or origination and funding of new loans, the Company has determined to focus solely on the ag business. Because the non-bank lending business remained in development, this change is not expected to have a significant adverse impact on the Company’s operations or financial results.

Results of Operations

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Revenue, net |  | $ | 6,628,000 |  |  | $ | - |  |  | $ | 31,581,000 |  |  | $ | - |
Cost of goods sold |  |  | 5,188,000 |  |  |  | - |  |  |  | 24,490,000 |  |  |  | - |
Gross profit |  |  | 1,440,000 |  |  |  | - |  |  |  | 7,091,000 |  |  |  | - |
Gross profit as a percent of sales |  |  | 22 | % |  | NA |  |  |  | 22 | % |  | NA |
Sales, general and administrative expenses |  |  | 2,791,000 |  |  |  | 1,633,000 |  |  |  | 9,920,000 |  |  |  | 2,983,000 |
Operating loss |  |  | (1,351,000 | ) |  |  | (1,633,000 | ) |  |  | (2,829,000 | ) |  |  | (2,983,000 | )
Operating loss as a percent of sales |  |  | (20 | )% |  | NA |  |  |  | (9 | )% |  | NA |
Foreign exchange difference, net |  |  | 46,000 |  |  |  | - |  |  |  | 10,000 |  |  |  | - |
Interest expense (income), net |  |  | 800,000 |  |  |  | (111,000 | ) |  |  | 1,989,000 |  |  |  | (325,000 | )
Other expenses, net |  |  | (3,000 | ) |  |  | - |  |  |  | (3,000 | ) |  |  | - |
Loss from continuing operations before income taxes |  |  | (2,194,000 | ) |  |  | (1,522,000 | ) |  |  | (4,825,000 | ) |  |  | (2,658,000 | )
Income tax benefit |  |  | (736,000 | ) |  |  | (11,000 | ) |  |  | (1,284,000 | ) |  |  | (4,000 | )
Net loss from continuing operations |  |  | (1,458,000 | ) |  |  | (1,511,000 | ) |  |  | (3,541,000 | ) |  |  | (2,654,000 | )
Income from discontinued operations, net of tax |  |  | 66,000 |  |  |  | 2,637,000 |  |  |  | 202,000 |  |  |  | 5,392,000 |
Net (loss) income including noncontrolling interest |  |  | (1,392,000 | ) |  |  | 1,126,000 |  |  |  | (3,339,000 | ) |  |  | 2,738,000 |
Less: Net (loss) income attributable to noncontrolling interest |  |  | (267,000 | ) |  |  | - |  |  |  | (536,000 | ) |  |  | - |
Net (loss) income attributable to Lendway, Inc. |  | $ | (1,125,000 | ) |  | $ | 1,126,000 |  |  | $ | (2,803,000 | ) |  | $ | 2,738,000 |

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

Revenue, Net. Revenue, net for the three and nine months ended September 30, 2024 was $6,628,000 and $31,581,000, respectively, all of which were generated from Bloomia for the period from its acquisition on February 22, 2024 (“the acquisition date”) through September 30, 2024 (the “acquisition period”). The first and second calendar quarters are normally the strongest sales quarters for Bloomia with the first calendar quarter benefiting from Valentine’s Day, Easter season and the start of the Spring season.

Gross Profit. Gross profit for the three months ended September 30, 2024 was $1,440,000 or 22% as a percentage of revenue. Gross margin percentage is typically higher in the first and second quarters since sales are typically higher and allow better leverage of fixed costs in costs of sales.

Gross profit for the nine months ended September 30, 2024, was $7,091,000. Gross profit as a percentage of total net revenue was 22% for the nine months ended September 30, 2024. The amortization of the inventory written up to fair value was $1,522,000 for the nine months ended September 30, 2024.

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

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Operating Expenses

Sales, general and administrative. Sales, general and administrative expenses for the three months ended September 30, 2024 were $2,791,000 compared to $1,633,000 for the three months ended September 30, 2023. The increase was primarily due to the acquisition of Bloomia.

Sales, general and administrative expenses for the nine months ended September 30, 2024, were $9,920,000 compared to $2,983,000 for the nine months ended September 30, 2023. The increases were primarily due to the acquisition of Bloomia, including one-time acquisition-related costs.

Interest Expense and Income. Interest expense for the three months ended September 30, 2024, was $800,000 compared to interest income of $111,000 for the three months ended September 30, 2023. In connection with the Bloomia acquisition, the Company began incurring interest expenses starting February 21, 2024. The Company did not have debt in the prior year. The Company has not hedged the risk of its interest expense. If the Term SOFR reference rate increases, the Company’s interest expense on its term loan and revolving credit facility will increase.

Interest expense for the nine months ended September 30, 2024, was $1,989,000 compared to interest income of $325,000 for the nine months ended September 30, 2023. The increase is due to the interest on the debt associated with the acquisition of Bloomia and less short-term investments in the current year.

Income Taxes. For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of 33.5% and 26.6%, respectively, on loss from continuing operations. The rate differs from the federal statutory rate of 21.0% due to state taxes of 4.7%, valuation allowance change of 9.3% and nondeductible transaction costs and other permanent items of (8.4)%. For the three and nine months ended September 30, 2023, the Company recorded an income tax expense of 0.6% and 0.1%, respectively, on loss from continuing operations before income taxes. The rate differs from the federal statutory rate of 21.0% due to state taxes of 3.5%, valuation allowance change of (24.5)%. and other permanent items of 0.1%.

For the three and nine months ended September 30, 2024, the Company recorded an income tax benefit of $736,000 and $1,284,000, respectively, on the loss from continuing operations before income taxes and equity in net income of equity investment. The overall benefit of $1,284,000 includes a $451,000 benefit for the reversal of the valuation allowance on federal deferred tax assets. During the first quarter of 2024, the Company established deferred tax liabilities related to the acquisition in the majority ownership of Bloomia. The Company anticipates that the deferred tax liabilities will result in future taxable income that will allow for the realization of the federal deferred tax assets.

As of September 30, 2024, and December 31, 2023, the Company had unrecognized tax benefits totaling $35,000 and $43,000, respectively, including interest, which relates to state nexus issues. The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $35,000.

Income from Discontinued Operations, Net of Tax. For the three and nine months ended September 30, 2024, income from discontinued operations is a result of the reduction in the accrual for sales tax due to the expiration of the statute of limitations. Income from discontinued operations, net of tax, for the three and nine months ended September 30, 2023 reflects results from operations from the legacy In-store Marketing Business and the $2,970,000 gain from the sale of that business. Information on the sale of the In-Store Marketing Business and statement of operations details of the discontinued operations are included in Note 4 to the condensed consolidated financial statements.

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

Non-GAAP Financial Measures

This report includes EBITDA which is a “non-GAAP financial measure.” EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense.

This non-GAAP financial measure, which is not calculated or presented in accordance with U.S. generally accepted accounting principles (“GAAP”), has been provided as information supplemental and in addition to the financial measures presented in accordance with GAAP. This non-GAAP financial measure is not a substitute for, or as an alternative to, and should be considered in conjunction with, respective GAAP financial measures. The non-GAAP financial measure presented may differ from similarly named measures used by other companies. We believe this non-GAAP financial measure will be useful to permit investors to evaluate the business consistent with how management evaluates the business. Our EBITDA excludes amounts from net loss from discontinued operations that we do not consider part of our core operating results when assessing our performance. Management has used EBITDA (a) to evaluate our historical and prospective financial performance and trends as well as our performance relative to competitors and peers; (b) to measure operational profitability on a consistent basis; (c) in presentations to the members of our Board of Directors; and (d) to evaluate compliance with covenants and restricted activities under the terms of our Credit Agreement.

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Net loss from continuing operations |  | $ | (1,458,000 | ) |  | $ | (1,511,000 | ) |  | $ | (3,541,000 | ) |  | $ | (2,654,000 | )
Interest expense (income), net |  |  | 800,000 |  |  |  | (111,000 | ) |  |  | 1,989,000 |  |  |  | (325,000 | )
Income tax benefit |  |  | (736,000 | ) |  |  | (11,000 | ) |  |  | (1,284,000 | ) |  |  | (4,000 | )
Depreciation and amortization |  |  | 820,000 |  |  |  | 10,000 |  |  |  | 1,928,000 |  |  |  | 36,000 |
EBITDA |  | $ | (574,000 | ) |  | $ | (1,623,000 | ) |  | $ | (908,000 | ) |  | $ | (2,947,000 | )

Liquidity and Capital Resources

The Company has financed its operations with proceeds from the sale of its legacy business and sales of its products, in addition to a significant payment resulting from the settlement of litigation. To aid in funding the Bloomia acquisition, Tulp 24.1 entered a Credit Agreement that provided an $18,000,000 term loan and a revolver with borrowings of up to $6,000,000. At September 30, 2024, the Company’s working capital (defined as current assets less current liabilities) was $11,520,000 compared to $15,525,000 at December 31, 2023. During the nine months ended September 30, 2024, cash and cash equivalents decreased $14,744,000 from $16,077,000 at December 31, 2023 to $1,333,000 at September 30, 2024.

Operating Activities of Continuing Operations. Net cash used in operating activities during the nine months ended September 30, 2024 was $2,663,000. Cash from operations is greatest in the first half of the year due to the seasonality of the Bloomia business. The Company used approximately $11,000,000 in cash in the period to purchase tulips bulbs.

Investing Activities of Continuing Operations. Net cash used in investing activities during the nine months ended September 30, 2024 was $34,682,000, which primarily related to the purchase price and other expenses resulting from the acquisition of Bloomia. Net cash used in investing activities also includes cash received from a note receivable, partially offset by cash paid for purchases of property and equipment.

Financing Activities. Net cash provided by financing activities during the nine months ended September 30, 2024 was $22,473,000, which primarily related to proceeds received from issuance of the Credit Agreement used to fund the acquisition of a majority interest in Bloomia.

On February 22, 2024, the Company acquired majority ownership in Bloomia for a total purchase price of $53,360,000. Consideration comprised of $34,919,000 of cash paid, $15,451,000 of seller bridge loans in lieu of cash, and $2,990,000 of equity issued of Tulp 24.1 which is reflected as noncontrolling interest within these condensed consolidated financial statements. The acquisition was funded through a combination of debt and cash on hand.

To finance the Bloomia acquisition, the Company entered into the Credit Agreement, together with Tulp 24.1 as the borrower. Under the terms of the Credit Agreement, Tulp 24.1 had an $18.0 million term loan funded. The Credit Agreement also contains a $6.0 million revolving credit facility, which may be used by Tulp 24.1 for general business purposes and working capital. On October 16, 2024, the Company amended the credit agreement (Amended Credit Agreement) to, among other things, temporarily increase the borrowing capacity under the revolving credit facility to $8,000,000.

Borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to Term SOFR for an interest period of one month plus 3.0%. In addition to paying interest on the outstanding principal under the Credit Agreement, Tulp 24.1 is required to pay a commitment fee of 0.50% on the unutilized commitments under the revolving credit facility.

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The term loans are scheduled to be repaid in quarterly installments of $450,000, commencing on June 30, 2024. The remaining outstanding balance will be repaid in full after five years. The scheduled maturity of the revolving facility is February 20, 2029. The September 2024 installment was paid in October 2024 and is included in the current portion of long-term debt on the condensed consolidated balance sheet.

The obligations under the Amended Credit Agreement are secured by substantially all of the personal property assets of Tulp 24.1 and its subsidiaries. The Company provided an unsecured guaranty of the obligations of Tulp 24.1 under the Amended Credit Agreement.

The Amended Credit Agreement requires Tulp 24.1 and its subsidiaries to maintain (a) a minimum fixed charge coverage ratio of not less than 1.25 to 1.00 and (b) a maximum senior cash flow leverage ratio of 3.75 to 1.0 until March 31, 2025, and stepping down to 2.00 to 1.00 on December 31, 2027, until the maturity date of the Amended Credit Agreement. The Amended Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict the ability of Tulp 24.1 and its subsidiaries to incur additional indebtedness, dispose of significant assets, make distributions or pay dividends to the Company, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments, enter into sale and leaseback transactions or grant liens on its assets, subject to certain limitations.

The Amended Credit Agreement contains customary events of default, the occurrence of which would permit the lenders to terminate their commitments and accelerate loans under the Amended Credit Agreement, including failure to make payments under the credit facility, failure to comply with covenants in the Amended Credit Agreement and other loan documents, cross default to other material indebtedness of Tulp 24.1 or any of its subsidiaries, failure of Tulp 24.1 or any of its subsidiaries to pay or discharge material judgments, bankruptcy of Tulp 24.1 or any of its subsidiaries, and change of control of the Company.

As of September 30, 2024, the Company was in compliance with these financial covenants and expects to be in compliance for at least the next twelve months.

As part of the financing of the Bloomia acquisition, Tulp 24.1 entered into notes payable with the sellers. Notes payable for $12,750,000 million have a term of five years, subject to requiring principal payments based on “excess cash flow” as defined. Interest is at 8% per annum in the first year and increases annually by 2 percentage points. Notes payable for $2,700,000 million were paid in full as of June 30, 2024.

On August 15, 2024, we entered into an unsecured Delayed Draw Term Note (the “Note”) with Air T Inc. (“Air T”) pursuant to which Air T has agreed to advance from time to time until August 15, 2026, but not on a revolving basis, up to $2.5 million to fund the Company’s operations. Amounts outstanding under the Note will bear interest at a fixed rate of 8.0%, which may be increased by 3.0% upon certain events of default. The entire principal amount outstanding on the Loans, together with accrued and unpaid interest thereon as set forth below, shall be due and payable in full on the earlier of (i) August 15, 2029, (ii) Borrow’s receipt of a written demand by the Lender delivered on or after February 15, 2026, and (iii) such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise (the “Maturity Date”). The borrower may prepay any Loan outstanding hereunder, together with accrued and unpaid interest on such Loan, at any time without prepayment or penalty. The Company borrowed $2,000,000 under the note in September 2024.

Air T beneficially owns greater than 10% of our outstanding Common Stock and is a member of a group of stockholders that collectively owns approximately 40% of our outstanding common stock. Additionally, our current director and Co-Chief Executive Officer, Mark R. Jundt serves as General Counsel and Corporate Secretary of Air T, current director and Co-Chief Executive Officer, Daniel C. Philp serves as Senior Vice President of Corporate development at Air T, and current director Nicholas J. Swenson serves as President and Chief Executive Officer of Air T and is himself a member of the stockholder group. The entry into the Note was approved in advance by the Audit Committee of our Board of Directors in accordance with our Related Person Transaction Approval Policy and by a vote of solely independent directors who have no relationship with Air T.

The Company expects that cash from operations combined with funds available under the Amended Credit Facility and the Note will provide sufficient credit availability to support its ongoing operations, fund its new debt service requirements, capital expenditures and working capital for at least the next 12 months.

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As the Company grows its businesses, we may be required to obtain additional capital through equity offerings or additional 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 additional 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 businesses or complete transactions related to the strategy.

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 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 business combinations, inventory, goodwill, long-lived and indefinite-lived assets, and income taxes. 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 are described in Note 2 to the financial statements included in Part I, Item 1 of this report. We believe our most critical accounting estimates include the following:

Inventory. We coordinate with recurring customers to plan production based on anticipated demand and projections; however, we may have to write down inventory or recognize a material impairment if our production significantly exceeds customer demand.

Business Combinations. We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, royalty rates and asset lives, among other items.

We used the income approach to value certain intangible assets. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. The fair value of customer relationships was estimated using a discounted present value income approach. We used the income approach known as the relief from royalty method to value the fair value of the trade name. The relief from royalty method is based on the hypothetical royalty stream that would be received if we were to license the trade name and was based on expected revenues. The determination of the fair value of other assets acquired and liabilities assumed involves assessing factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount rates at the date of the acquisition.

Allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocation. During this measurement period, we will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. All changes that do not qualify as measurement period adjustments are included in current period earnings.

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If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill or require acceleration of the amortization expense of finite-lived intangible assets.

Impairment of goodwill and indefinite-lived intangibles. Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.

We test goodwill and identifiable intangible assets with indefinite lives for impairment at least annually in the fourth quarter. Impairment testing for goodwill is done at a reporting unit level and all goodwill is assigned to a reporting unit. Our reporting units are the same as our reporting segments.

We test goodwill for impairment by either performing a qualitative evaluation or a quantitative test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results and cost factors, as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect to bypass this qualitative assessment and perform the quantitative test in accordance with ASC 350, Intangibles - Goodwill and Other. Fair values under the quantitative test are estimated using a combination of discounted projected future earnings or cash flow methods and multiples of earnings in estimating fair value. The estimate of the reporting unit’s fair value is determined by weighing a discounted cash flow model and a market-related model using current industry information that involve significant unobservable inputs (Level 3 inputs). In determining the estimated future cash flow, we consider and apply certain estimates and judgments, including current and projected future levels of income based on management’s plans, business trends, prospects and market and economic conditions, and market-participant considerations. These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts.

If we fail the quantitative assessment of goodwill impairment (“quantitative assessment”), we would be required to recognize an impairment loss equal to the amount that a reporting unit’s carrying value exceeded its fair value.

We have an indefinite-lived intangible asset for trade name of $8,570,000 from the Bloomia acquisition. Annually in the fourth quarter, or if conditions indicate an additional review is necessary, we assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. We have the option to first assess qualitative factors to determine whether the fair value of a trade name is “more likely than not” less than its carrying value. If it is more likely than not that an impairment has occurred, we then perform the quantitative impairment test. If we perform the quantitative test, the carrying value of the asset is compared to an estimate of its fair value to identify impairment. The fair value is determined by the relief from royalty method, which requires significant judgment. Actual results may differ from assumed and estimated amounts utilized in the analysis. If we conclude an impairment exists, the asset’s carrying value will be written down to its fair value.

Long-Lived Assets. Long-lived assets, which include property and equipment, and definite-lived intangible assets, primarily customer relationships and trade name, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. The impairment testing involves comparing the carrying amount of the asset to the forecasted undiscounted future cash flows generated by that asset. These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts. In the event the carrying amount of the asset exceeds the undiscounted future cash flows generated by that asset and the carrying amount is not considered recoverable, an impairment exists. An impairment loss is measured as the excess of the asset’s carrying amount over its fair value and is recognized in the statement of income in the period that the impairment occurs. The reasonableness of the useful lives of this asset and other long-lived assets is regularly evaluated.

Interest expense. For debt with variable rate interest, interest expense is recorded based on a weighted average effective interest rate method. The significant assumptions used in the weighted average estimate are the future debt balance and the length of time the debt will be outstanding.

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Income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which 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, adjustments 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.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As a multinational corporation, we are subject to taxation in many jurisdictions, and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability will be reversed, and we will recognize a tax benefit during the period in which it is determined the liability no longer applies. Conversely, the Company records additional tax charges in a period in which it is determined that a recorded tax liability is less than the ultimate assessment is expected to be.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from management’s estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made in this report 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 “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “likely,” “may,” “plan,” “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, cash generated by operations and borrowings available under our Credit Agreement, will provide adequate liquidity and capital resources for at least the next twelve months, and (ii) regarding the potential for growth and other opportunities for our businesses. 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.

Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following: (1) our ability to integrate and continue to successfully operate the newly acquired Bloomia business, (2) our ability to compete, (3) concentration of Bloomia’s historical revenue among a small number of customers, (4) changes in interest rates, (5) ability to comply with the requirements of the Credit Agreement, (6) market conditions that may restrict or delay appropriate or desirable opportunities, (7) our ability to develop and maintain necessary processes and controls relating to our businesses (8) reliance on one or a small number of employees in each of our businesses, (9) potential adverse classifications of our Company if we are unsuccessful in executing our business plans, (10) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s businesses generally; (11) our ability to attract and retain highly qualified managerial, operational and sales personnel; and (12) the availability of additional capital on desirable terms, if at all. Forward-looking statements involve known and unknown risks, uncertainties and other factors, including those set forth in this report and additional risks, if any, identified in our Annual Report on Form 10-K, this and subsequent Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K filed with the SEC. Such forward-looking statements should be read in conjunction with the Company’s filings with the SEC. Lendway assumes no responsibility to update the forward-looking statements contained in this report or the reasons why actual results would differ from those anticipated in any such forward-looking statement, other than as required by law.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

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 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, Dan Philp and Mark Jundt, principal executive officers and Biz McShane, principal accounting and financial officer concluded that the Company’s disclosure controls and procedures as of September 30, 2024 were effective.

Changes in Internal Control Over Financial Reporting

During the year, we completed the acquisition of a majority interest in Bloomia B.V. (“Bloomia”) which represents a material change in internal control over financial reporting since management’s last assessment. Prior to the acquisition, Bloomia was a private company and has not been subject to the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements to which public reporting companies may be subject. As part of our ongoing integration activities, we are continuing to incorporate our controls and procedures into the acquired Bloomia subsidiaries and to augment our company-wide controls to reflect the risks inherent in an acquisition of this type.

Other than the Bloomia acquisition, there were no changes in the Company’s internal control over financial reporting occurred during the first nine months of 2024 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 description of our legal proceedings, if any, is contained in Note 12 of the Notes to condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, incorporated herein by reference.

Item 1A. Risk Factors

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, 2023, except as noted below.

The Company’s success depends on its key personnel.

The Company’s business results depend largely upon the continued contributions of Bloomia’s CEO Werner Jansen. If Mr. Jansen no longer serves in (or serves in some lesser capacity than) his current role, or if the Company loses other members of our management team, we may not be able to successfully execute on our business strategy and our business, financial condition and results of operations, as well as the market price of its securities, could be adversely affected.

If we fail to establish and maintain effective internal control over financial reporting, then we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and the market price of our common stock.

Company management is responsible for establishing and maintaining effective internal controls designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. Any internal control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Given the limited current number of employees, this resource constraint causes challenges in effectively providing appropriate segregation of duties. Because of the inherent limitations in all internal control systems, internal control over business processes and financial reporting may not prevent or detect fraud or misstatements.

We are required, pursuant to Section 404 of the Sarbanes Oxley Act (SOX), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. As a smaller reporting company, the Company is not required to have an attestation from its external auditor on the effectiveness of its internal control over financial reporting and disclosure controls and procedures. With regards to its February 2024 acquisition of Bloomia, the Company intends to elect the provision under SOX to exclude the evaluation of internal control over financial reporting and disclosure controls and procedures for Bloomia for a one-year period after the acquisition date.

During the second, third and fourth quarters of 2024, the Company has experienced significant challenges completing required SEC filings in the time allotted or has relied on extensions. The delays were primarily caused by acquisition-related integration issues. While the Company has taken steps to address the issue, including hiring a new Chief Financial Officer, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will prevent or avoid potential future delays in filings or material weaknesses. If we are unable to maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities, and our ability to access the capital markets could be limited.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Share Repurchases

On August 28, 2023, we announced that our Board of Directors had approved a stock repurchase authorization providing for the repurchase of up to 400,000 shares of the Company’s common stock. We may purchase shares of our common stock from time to time in open market transactions at prevailing market prices, in privately negotiated transaction, or by other means in accordance with federal securities laws. Open market repurchases may be effected pursuant to Rule 10b5-1 trading plans. The repurchase 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. There was no repurchase activity for the three months ended September 30, 2024. As of September 30, 2024, 315,792 shares remained available for repurchase under the existing authorization.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended September 30, 2024, 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
2.1* |  | Asset Purchase Agreement dated May 24, 2023 |  | Exhibit 2.1 to Current Report filed May 25, 2023
2.2* |  | Agreement for the Sale and Purchase of Shares, dated February 21, 2024, by and among Tulp 24.1, LLC, Tulipa Acquisitie Holding B.V., Botman Bloembollen B.V., W.F. Jansen, H.J. Strengers and the Company |  | Exhibit 2.1 to Current Report filed February 26, 2024
3.1 |  | Certificate of Incorporation |  | Exhibit 3.1 to Current Report filed August 9, 2023
3.2 |  | Bylaws |  | Exhibit 3.2 to Current Report filed August 9, 2023
31.1 |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |  | Filed Electronically
31.2 |  | Certification of Principal Financial and Accounting Officer |  | Filed Electronically
32 |  | Section 1350 Certifications |  | Furnished Electronically
101 |  | The following materials from Lendway, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in inline XBRL (extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss); (iii) Condensed Consolidated Statements of Stockholders’ Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements |  | Filed Electronically
104 |  | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the inline XBRL document) |  | 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.

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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.

| LENDWAY, INC. |
| (Registrant) |
Dated: November 19, 2024 | /s/ Mark R. Jundt |
| Mark R. Jundt |
| Co-Chief Executive Officer |
| (on behalf of registrant) |
Dated: November 19, 2024 | /s/ Daniel C. Philp |
| Daniel C. Philp |
| Co-Chief Executive Officer |
| (on behalf of registrant) |
Dated: November 19, 2024 | /s/ Elizabeth E. McShane |
| Elizabeth E. McShane |
| Chief Financial Officer |
| (principal financial and accounting officer) |

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