ldwy_10q.htm

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 June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ___________ to ____________

Commission File Number: 1-13471

LENDWAY, INC.

(Exact name of registrant as specified in its charter)

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

5000 West 36th Street, Suite 220, Minneapolis, MN 55416

(Address of principal executive offices; zip code)

(763) 392-6200

(Registrant’s telephone number, including area code)

Insignia Systems, Inc.; 212 Third Avenue N, Suite 356, Minneapolis, MN 55401

(Former name, former address and former fiscal year, if changed since last report)

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 August 8, 2023 was 1,797,659.

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q is being filed by the registrant, Lendway, Inc., a Delaware corporation(the “Company”). Effective August 4, 2023 we changed our name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware. As part of the name change, our common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC.

On August 3, 2023, the Company sold certain assets and certain liabilities relating to the Company’s business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “Legacy Business”) for a cash purchase price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement dated May 24, 2023 (the “Purchase Agreement”). The Company retained accounts receivable, as well as all cash, cash equivalents and marketable securities. The purchase price is subject to a post-closing adjustment depending on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs.

The operations of the Legacy Business will be presented as discontinued operations beginning with the Quarterly Report on Form 10-Q for the three months ended September 30, 2023, the quarter in which the sale of the Legacy Business met the criteria as a discontinued operation. See Note 2 of the Notes to the Condensed Consolidated Financial Statements appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q for a further description of the impacts of the sale of the Legacy Business on the condensed consolidated financial statements including pro forma analysis.

The Company is building a scalable non-bank lending business to purchase existing loans or originate and fund new loans, all of which will be secured by collateral.

Lendway, Inc.

(formerly Insignia Systems, Inc.)

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets – June 30, 2023 (unaudited) and December 31, 2022	4

	Condensed Consolidated Statements of Operations – Three and six months ended June 30, 2023 and 2022 (unaudited)	5

	Condensed Consolidated Statements of Shareholders’ Equity – Three and six months ended June 30, 2023 and 2022 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2023 and 2022 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements – (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Resultsof Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

PART II.	OTHER INFORMATION	25

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	26

Item 3.	Defaults upon Senior Securities	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	26

Item 6.	Exhibits	27

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lendway, Inc. and Subsidiaries
(formerly Insignia Systems, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,
	2023			December 31,
	(Unaudited)			2022
ASSETS
Current Assets:
Cash and cash equivalents	$	11,419,000		$	14,439,000
Restricted cash		85,000			85,000
Accounts receivable, net		7,583,000			5,557,000
Inventories		28,000			29,000
Income tax receivable		90,000			28,000
Prepaid production costs		143,000			535,000
Other prepaid expense		208,000			80,000
Total Current Assets		19,556,000			20,753,000

Other Assets:
Property and equipment, net		71,000			71,000
Operating lease right-of-use assets		123,000			144,000
Other, net		10,000			—

Total Assets	$	19,760,000		$	20,968,000

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable		1,324,000			2,653,000
Accrued liabilities:
Compensation		912,000			962,000
Sales tax		397,000			717,000
Other		722,000			611,000
Current portion of operating lease liabilities		16,000			4,000
Deferred revenue		1,154,000			2,427,000
Total Current Liabilities		4,525,000			7,374,000

Long-Term Liabilities:
Accrued income taxes		55,000			53,000
Operating lease liabilities		123,000			140,000
Total Long-Term Liabilities		178,000			193,000

Commitments and Contingencies		—			—

Shareholders' Equity:
Common stock, par value $.01:
Authorized shares - 5,714,000
Issued and outstanding shares - 1,798,000 at June 30, 2023 and 1,797,000 at December 31, 2022, respectively		18,000			18,000
Additional paid-in capital		16,502,000			16,458,000
Accumulated deficit		(1,463,000	)		(3,075,000	)
Total Shareholders' Equity		15,057,000			13,401,000

Total Liabilities and Shareholders' Equity	$	19,760,000		$	20,968,000

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Lendway, Inc. and Subsidiaries
(formerly Insignia Sytems, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2023			2022			2023		2022
Net services revenues	$	6,211,000		$	3,254,000		$	19,042,000	$	9,402,000

Cost of services		4,588,000			2,838,000			14,499,000		7,706,000
Gross Profit		1,623,000			416,000			4,543,000		1,696,000

Operating Expenses:
Selling		361,000			290,000			725,000		632,000
Marketing		300,000			279,000			596,000		538,000
General and administrative		1,129,000			948,000			1,850,000		1,554,000
Total Operating Expenses		1,790,000			1,517,000			3,171,000		2,724,000
Operating (Loss) Income		(167,000	)		(1,101,000	)		1,372,000		(1,028,000	)

Interest income		135,000			31,000			247,000		28,000
(Loss) Income before Taxes		(32,000	)		(1,070,000	)		1,619,000		(1,000,000	)

Income tax expense		4,000			14,000			7,000		22,000
Net (Loss) Income	$	(36,000	)	$	(1,084,000	)	$	1,612,000	$	(1,022,000	)

Net (loss) income per share:
Basic	$	(0.02	)	$	(0.61	)	$	0.90	$	(0.57	)
Diluted	$	(0.02	)	$	(0.61	)	$	0.89	$	(0.57	)

Shares used in calculation of net (loss) income per share:
Basic		1,798,000			1,788,000			1,798,000		1,787,000
Diluted		1,798,000			1,788,000			1,802,000		1,787,000

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Lendway, Inc. and Subsidiaries
(formerly Insignia Systems, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)

	Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2022		1,797,000	$	18,000	$	16,458,000	$	(3,075,000	)	$	13,401,000
Issuance of common stock, net		1,000		—		8,000		—			8,000
Value of stock-based compensation		—		—		22,000		—			22,000
Net income		—		—		—		1,648,000			1,648,000

Balance at March 31, 2023		1,798,000	$	18,000	$	16,488,000	$	(1,427,000	)	$	15,079,000
Value of stock-based compensation		—		—		14,000		—			14,000
Net loss		—		—		—		(36,000	)		(36,000	)
Balance at June 30, 2023		1,798,000	$	18,000	$	16,502,000	$	(1,463,000	)	$	15,057,000

	Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
Balance at December 31, 2021		1,782,000	$	18,000	$	16,296,000	$	(13,121,000	)	$	3,193,000
Issuance of common stock, net		4,000		—		28,000		—			28,000
Value of stock-based compensation		—		—		30,000		—			30,000
Net income		—		—		—		62,000			62,000

Balance at March 31, 2022		1,786,000	$	18,000	$	16,354,000	$	(13,059,000	)	$	3,313,000
Issuance of common stock, net		1,000		—		11,000		—			11,000
Value of stock-based compensation		—		—		29,000		—			29,000
Issuance of common stock upon vesting of restricted stock units		6,000		—		—		—			—
Net loss		—		—		—		(1,084,000	)		(1,084,000	)
Balance at June 30, 2022		1,793,000	$	18,000	$	16,394,000	$	(14,143,000	)	$	2,269,000

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Lendway, Inc. and Subsidiaries
(formerly Insignia Systems, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30	2023			2022
Operating Activities:
Net income (loss)	$	1,612,000		$	(1,022,000	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		26,000			31,000
Changes in allowance for doubtful accounts		11,000			27,000
Stock-based compensation expense		36,000			59,000
Changes in operating assets and liabilities:
Accounts receivable		(2,037,000	)		1,096,000
Inventories		1,000			(6,000	)
Income tax receivable		(62,000	)		(2,000	)
Prepaid expenses and other		254,000			941,000
Accounts payable		(1,336,000	)		(1,208,000	)
Accrued liabilities		(243,000	)		(1,170,000	)
Accrued income taxes		2,000			19,000
Deferred revenue		(1,273,000	)		(240,000	)
Net cash used in operating activities		(3,009,000	)		(1,475,000	)

Investing Activities:
Purchases of property and equipment		(19,000	)		(28,000	)
Net cash used in investing activities		(19,000	)		(28,000	)

Financing Activities:
Proceeds from issuance of common stock, net		8,000			39,000
Net cash provided by financing activities		8,000			39,000

Decrease in cash and cash equivalents and restricted cash		(3,020,000	)		(1,464,000	)

Cash and cash equivalents and restricted cash at beginning of period		14,524,000			3,851,000
Cash and cash equivalents and restricted cash at end of period	$	11,504,000		$	2,387,000

Supplemental disclosures for cash flow information:
Cash paid during the period for income taxes	$	66,000		$	5,000

Non-cash financing activity:
Purchase of property and equipment included in accounts payable	$	7,000		$	-

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business and Basis of Presentation.

Description of Business. Lendway, Inc., a Delaware corporation (the “Company), is building a scalable non-bank lending business to purchase existing loans or originate and fund new loans, all of which will be secured by collateral. On August 4, 2023, the Company changed its name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware. As part of the name change, the Company’s common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC.

As described in Note 2, on August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “Legacy Business”) for a price of $3.5 million, subject to escrows and a post-closing adjustment.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Securities and Exchange Commission (“SEC”) Regulation S-X. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the notes to financial statements included in the Company’s financial statements as of and for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2023 (the Form 10-K). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying condensed balance sheet as of December 31, 2022 has been derived from the audited balance sheet as of December 31, 2022 contained in the Form 10-K.

The condensed consolidated financial statements include the accounts of the Company, its subsidiary, Farmland Credit, Inc., a Minnesota corporation (“FCI”), and FCI’s subsidiaries, Farmland Credit FR, LLC and Farmland Credit AV, LLC.

2. Asset Sale.

On August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s Legacy Business for a price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement (the “Purchase Agreement”). The Company retained accounts receivable, as well as cash, cash equivalents and marketable securities. The purchase price is subject to a post-closing adjustment depending on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The Company received significant cash payments between July 1 and August 3, 2023 for unexecuted programs, which the Company will retain, but which will reduce the purchase price. 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.

The Company incurred approximately $350,000 of transaction-related costs that had not previously been expensed. The Company also incurred transaction-related severance and other separation benefits in connection with the termination of certain officers and employees of the Company of approximately $1,537,000, as well as retention award payouts totaling $143,000 and employee bonuses totaling $164,000, each of which will be recorded as expense in the three months ended September 30, 2023.

The operations of the Legacy Business will be presented as discontinued operations beginning with the Quarterly Report on Form 10-Q for the three months ended September 30, 2023. The Company is presenting unaudited pro forma condensed consolidated information on a discontinued operations basis to illustrate the significant impact of the sale of the Legacy Business on the Company’s balance sheet and statement of operations. The Company is presenting the pro forma information for the three months ended June 30, 2023, as that is the period in which the non-bank lending business began. No impact from the sale proceeds and related costs are included in the pro forma information.

Table of Contents

Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

The unaudited pro forma condensed consolidated balance sheet illustrates the impact at June 30, 2023 had discontinued operations presentation been used (unaudited). The amounts held for sale represent the assets that will be purchased by the Buyer and liabilities which will be assumed by the Buyer:

	Historical		Discontinued Operations Adjustments			Pro Forma Continued Operations
ASSETS
Current Assets:
Cash and cash equivalents	$	11,419,000	$	-		$	11,419,000
Restricted cash		85,000		-			85,000
Accounts receivable, net		7,583,000		-			7,583,000
Inventories		28,000		(28,000	)		-
Income tax receivable		90,000		-			90,000
Prepaid production costs		143,000		(143,000	)		-
Other prepaid expense		208,000		(19,000	)		189,000
Current assets held for sale		-		190,000			190,000
Total Current Assets		19,556,000		-			19,556,000

Other Assets:
Property and equipment, net		71,000		(71,000	)		-
Operating lease right-of-use assets		123,000		(123,000	)		-
Other, net		10,000		-			10,000
Non-current assets held for sale		-		194,000			194,000

Total Assets	$	19,760,000	$	-		$	19,760,000

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable		1,324,000		(72,000	)		1,252,000
Accrued liabilities		2,031,000		-			2,031,000
Current portion of operating lease liabilities		16,000		(16,000	)		-
Deferred revenue		1,154,000		(1,154,000	)		-
Current liabilities held for sale		-		1,242,000			1,242,000
Total Current Liabilities		4,525,000		-			4,525,000

Long-Term Liabilities:
Accrued income taxes		55,000		-			55,000
Operating lease liabilities		123,000		(123,000	)		-
Non-current liabilities held for sale		-		123,000			123,000
Total Long-Term Liabilities		178,000		-			178,000

Commitments and Contingencies		-		-			-

Shareholders' Equity:
Total Shareholders' Equity		15,057,000		-			15,057,000

Total Liabilities and Shareholders' Equity	$	19,760,000	$	-		$	19,760,000

Table of Contents

Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

The unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2023 illustrates the impact for that period had discontinued operations presentation been used (unaudited). The discontinued operations adjustments represent amounts that relate to the Legacy Business, with no allocation of general overhead to the Legacy Business:

	Historical			Discontinued Operations Adjustments			Pro Forma Continuing Operations
Net services revenues	$	6,211,000		$	(6,211,000	)	$	-

Cost of services		4,588,000			(4,588,000	)		-
Gross Profit		1,623,000			(1,623,000	)		-

Operating Expenses:
Selling		361,000			(361,000	)		-
Marketing		300,000			(300,000	)		-
General and administrative		1,129,000			(572,000	)		557,000
Total Operating Expenses		1,790,000			(1,233,000	)		557,000
Operating Income (Loss)		(167,000	)		(390,000	)		(557,000	)

Interest income		135,000			-			135,000
Income (Loss) from Operations Before Taxes		(32,000	)		(390,000	)		(422,000	)

Income tax expense		4,000			-			4,000

Net Income (Loss) from Continuing Operations							$	(426,000	)

Net (Income) Loss from Discontinued Operations				$	(390,000	)

Net Income (Loss)	$	(36,000	)

Net income (loss) per share, basic and diluted:
Continuing operations							$	(0.24	)
Discontinued operations				$	0.22
Total	$	(0.02	)

Weighted average shares outstanding:
Basic and diluted		1,798,000			1,798,000			1,798,000

Table of Contents

Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

3.Summary of Significant Accounting Policies.

Cash and Cash Equivalents and Restricted Cash. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows:

	June 30,		December 31,
	2023		2022
Cash and cash equivalents	$	11,419,000	$	14,439,000
Restricted cash		85,000		85,000
Total cash, cash equivalents and restricted cash	$	11,504,000	$	14,524,000

Inventories. Inventories are primarily comprised of sign cards and hardware. Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method.

Property and Equipment. During the six months ended June 30,2023, fully depreciated property and equipment in the aggregate amount of $268,000 was written off. Property and equipment consisted of the following as of the dates indicated:

	June 30,			December 31,
	2023			2022
Property and Equipment:
Production tooling, machinery and equipment	$	-		$	27,000
Office furniture and fixtures		85,000			95,000
Computer equipment and software		531,000			771,000
Leasehold improvements		19,000			19,000
Construction in-progress		12,000			3,000
		647,000			915,000
Accumulated depreciation and amortization		(576,000	)		(844,000	)
Net Property and Equipment	$	71,000		$	71,000

Depreciation expense was approximately $12,000 and $26,000 in the three and six months ended June 30, 2023, respectively, and was $15,000 and $31,000 in the three and six months ended June 30, 2022, respectively.

Stock-Based Compensation. The Company measures and recognizes compensation expense for all stock-based payments at fair value. Restricted stock units and awards are valued at the closing market price of the Company’s stock as of the date of the grant. The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options and employee stock purchase plan rights. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

During the six-month periods ended June 30, 2023 and 2022 no equity awards were issued by the Company.

In June 2021, non-employee members of the Board of Directors received restricted stock grants totaling 5,514 shares pursuant to the 2018 Equity Incentive Plan. The shares underlying the awards were assigned a value of $8.16 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $45,000. The shares vested on June 1, 2022.

The Company estimated the fair value of stock-based awards granted during the three and six months ended June 30, 2023, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 95.2%, dividend yield of 0% and risk-free interest rate of 4.7%.

Table of Contents

Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

Total stock-based compensation expense recorded for the three and six months ended June 30, 2023 was $14,000 and $36,000, respectively, and for the three and six months ended June 30, 2022 was $29,000 and $59,000, respectively.

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

Due to the net loss incurred during the three months ended June 30, 2023 all outstanding stock awards were anti-dilutive for that periods. For the six months ended June 30, 2023 options to purchase approximately 14,000 shares of common stock with a weighted average exercise price of $11.74 were outstanding and were not included in the computation of common stock equivalents for the six months ended June 30, 2023 because their exercise prices were higher than the average fair market value of the common stock during the reporting period.

Due to the net loss incurred during the three and six months ended June 30, 2022 all outstanding stock awards were anti-dilutive for those periods. As of June 30, 2022, the Company had 14,086 options and 3,396 restricted units outstanding.

Weighted average common shares outstanding for the three and six months ended June 30, 2023 and 2022 were as follows:

	Three Months Ended				Six Months Ended
	June 30				June 30
	2023		2022		2023		2022
Denominator for basic net loss per share - weighted average shares		1,798,000		1,788,000		1,798,000		1,787,000
Effect of dilutive securities:
Stock options and restricted stock units		—		—		4,000		—
Denominator for diluted net loss per share - weighted average shares		1,798,000		1,788,000		1,802,000		1,787,000

4. Revenue Recognition. Under Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“Topic 606”), revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to a customer and significant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, as further described below under “Performance Obligations.”

Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting.

The Company includes shipping and handling fees in revenues. Shipping and handling costs associated with outbound freight after control over a product has been passed to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The following is a description of the Company’s performance obligations included in its primary revenue streams and the timing or method of revenue recognition for each:

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Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

Display, On-Pack, and Non-POPS Signage Solutions. The Legacy Business supplied CPG manufacturers with retailer approved promotional services, such as display, on-pack, and signage solutions. These services were more customized than POPS, consisting of variable durations and variable specifications. Due to the variable nature of these services, revenue recognition is primarily at a point-in-time recognition.

POPS Signage Solution Services. The Legacy Business provided a service of displaying promotional signs in close proximity to the CPG manufacturer’s product in participating stores, which the Company maintained in two-to-four-week cycle increments.

Each of the individual activities under the Legacy Business’ services, including production activities, are inputs to an integrated sign display service. Customers receive and consume the benefits from the promotional displays over the duration of the contracted display cycle. Additionally, the display of the signs does not have an alternative use to the Company and the Company had an enforceable right to payment for services performed through the closing of the sale of the Legacy Business. As a result, the Company has recognized the transaction price for service performance obligations as revenue over time. Given the nature of the Legacy Business’ performance obligations is to provide a display service over the duration of a specified period or periods, the Company recognizes revenue on a straight-line basis over the display service period as it best reflects the timing of transfer of its sign solutions.

Disaggregation of Revenue

In the following table, revenue is disaggregated by timing of revenue recognition.

	Three months ended June 30				Six months ended June 30
	2023		2022		2023		2022
	Services Revenues		Services Revenues		Services Revenues		Services Revenues
Timing of revenue recognition:
Services transferred over time	$	470,000	$	502,000	$	733,000	$	958,000
Services transferred at a point in time		5,741,000		2,752,000		18,309,000		8,444,000
Total	$	6,211,000	$	3,254,000	$	19,042,000	$	9,402,000

Contract Costs

Sales commissions that were paid to internal or external sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company is applying the practical expedient in Accounting Standards Codification 340-40-25-4 that allows the incremental costs of obtaining a contract to be recorded as an expense when incurred when the amortization period of the asset that would have otherwise been recognized is one year or less. These costs are included in selling expenses.

Deferred Revenue

Deferred revenues represent amounts collected from customers in advance of the satisfaction of performance obligations. Significant changes in deferred revenue during the period are as follows:

Balance at December 31, 2022	$	2,427,000
Reclassification of beginning deferred revenue to revenue, as a result of performance obligations satisfied		(2,066,000	)
Cash received in advance and not recognized as revenue		793,000
Balance at June 30, 2023	$	1,154,000

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Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

Transaction Price Allocated to Remaining Performance Obligations

The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, which reflect the majority of its performance obligations. This practical expedient is being applied to arrangements for certain incomplete services and unshipped custom signage materials. Contracts that had an expected duration of greater than one year were insignificant at June 30, 2023.

5. Leases. As of June 30, 2023, the Company leased space under a non-cancelable operating lease for its corporate headquarters, which had been renewed through December 31, 2026. The Company also had a lease for warehouse space which expired March 31, 2023. The warehouse lease was extended on a month-to-month basis effective April 1, 2023. The corporate headquarters lease had escalating lease payment terms but did not contain a contingent rent provision. The leases for both the Company’s corporate headquarters and its warehouse included both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. The headquarters lease required the Company to provide a letter of credit, which was supported by $85,000 reflected as restricted cash on the consolidated balance sheet. The Company used its incremental borrowing rate of approximately 7.0% in determining the present value of the extended lease payments.

The cost components of the Company’s operating leases were as follows for the three and six month periods ended June 30, 2023 and 2022:

	Three months ended June 30, 2023						Six months ended June 30, 2023
	Corporate				Operating		Corporate				Operating
	Headquarters		Other		Leases		Headquarters		Other		Leases
Operating lease cost	$	10,000	$	-	$	10,000	$	21,000	$	4,000	$	25,000
Variable lease cost		2,000		-		2,000		6,000		4,000		10,000
Short-term lease cost		-		10,000		10,000		-		10,000		10,000
Total	$	12,000	$	10,000	$	22,000	$	27,000	$	18,000	$	45,000

	Three months ended June 30, 2022						Six months ended June 30, 2022
	Corporate				Operating		Corporate				Operating
	Headquarters		Other		Leases		Headquarters		Other		Leases
Operating lease cost	$	16,000	$	5,000	$	21,000	$	33,000	$	9,000	$	42,000
Variable lease cost		10,000		3,000		13,000		20,000		6,000		26,000
Total	$	26,000	$	8,000	$	34,000	$	53,000	$	15,000	$	68,000

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs which are paid based on actual costs incurred by the lessor.

Maturities of the Company’s lease liabilities for its corporate headquarters operating lease are as follows as of June 30, 2023:

2023	$	-
2024		52,000
2025		53,000
2026		55,000
Total lease payments		160,000
Less: Interest		21,000
Present value of lease liabilities	$	139,000

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Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

The remaining lease terms as of June 30, 2023 for the Company’s corporate headquarters lease was 3.5 years. The cash outflows for operating leases were $0 and $10,000 for the three and six months ended June 30, 2022, respectively, and were $20,000 and $41,000 for the three and six months ended June 30, 2022, respectively.

Subsequent to June 30, 2023, the headquarters lease was assigned to the Buyer as a part of the sale of the Legacy Business.

6. Income Taxes. For the three and six months ended June 30, 2023, the Company recorded income tax expense of $4,000 and $7,000, respectively, or 12.5% and 0.4% of loss (income) before taxes, respectively. For the three and six months ended June 30, 2022, the Company recorded income tax expense of $14,000 and $22,000, respectively, or 1.3% and 2.2% of loss before taxes, respectively. The income tax expense for the three and six months ended June 30, 2023 and 2022 is comprised of federal and state taxes. The Company reassesses its effective rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss). The actual tax expense attributable to income before taxes differs from the expected tax expense computed by applying the U.S. federal corporate income tax rate of 21.0% as follows:

Six months ended June 30,	2023			2022
Federal statutory rate		21.0	%		21.0	%
Stock-based awards		2.2			(0.5	)
State taxes		3.8			3.4
Impact of uncertain tax positions		0.1			(1.9	)
Valuation allowance		(24.2	)		(25.0	)
Other		(2.5	)		0.8

Effective federal income tax rate		0.4	%		(2.2	)%

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of enacted tax laws. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which it operates, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustment to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria.

As of June 30, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $55,000 and $53,000, respectively, including interest, which relates to state nexus issues. The amount of the unrecognized tax benefits, if recognized, that would affect the effective income tax rates of future periods is $55,000.

At December 31, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $2,900,000. As of June 30, 2023, the Company estimates remaining Federal NOL carryforwards to be approximately $1,300,000. Federal NOL utilization is limited to 80% of estimated taxable income. The estimated NOL carry forward will be adjusted at year end for actual results.

7. Concentrations. During the six months ended June 30, 2023, two customers accounted for 27% and 18%, respectively of the Legacy Business’ total net sales. During the six months ended June 30, 2022, three customers accounted for 22%, 15% and 10%, respectively of the Legacy Business’ total net sales.

At June 30, 2023, one customer represented 70% of the Legacy Business’ total accounts receivable. At December 31, 2022, three customers represented 20%, 19% and 11%, respectively, of the Company’s total accounts receivable.

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Lendway, Inc. and Subsidiaries

(formerly Insignia Systems, Inc.)

Notes To Condensed Consolidated Financial Statements

(Unaudited)

8. Legal Proceedings. The Company is subject to various legal matters in the normal course of business. The outcome of these matters is not expected to have a material effect on the Company’s financial position or results of operations.

In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”) in the U.S. District Court in Minnesota, alleging violations of federal and state antitrust and tort laws by News America.

On July 1, 2022, the Company entered into a $20 million settlement agreement with News America. The agreement memorializes the amicable settlement of the Company’s outstanding lawsuit against News America. The agreement resulted in net proceeds before income tax of $12,000,000 for the Company, which was recorded as a gain on litigation settlement in operations during the three months ended September 30, 2022.

9. Subsequent Event.

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the condensed consolidated financial statements except for the events described in Note 2 related to the sale of the Legacy Business and the incurring of severance and other separation benefits.

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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 financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere, including Part II, Item 1A, in this Quarterly Report on Form 10-Q (“10-Q”) and the “Risk Factors” described in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, our Current Reports on Form 8-K and our other SEC filings.

Company Overview

We are building a scalable non-bank lending business to purchase existing loans or originate and fund new loans, all of which will be secured by collateral (individually or collectively, the “Secured Loans”). On April 7, 2023, we announced the launch of our non-bank lending business, through the hiring of a Senior Vice President of Lending with over 20 years of experience in credit and lending.

Initially, we intend to focus on loans secured by real estate, primarily for agricultural purposes. We expect to expand our product offerings over time as we identify needs and opportunities in the marketplace for loans generally. Our plan, therefore, is to build a portfolio of well-secured loans, with a portion of the credit risk being participated to third parties in most cases, to maintain a low net loss experience and to charge fully compensatory rates and fees.

The primary sources of revenue from our non-bank lending business are expected to consist of:

	·	interest income earned on assets on the balance sheet, including but not limited to Secured Loans, net of related funding costs and interest payments, and
	·	fee income generated from origination and servicing of Secured Loans.

We are building our strategy and long-term growth initiatives upon a few fundamental factors:

	·	streamlined systems and processes to support the growth of our core business through connecting customers with competitive funding;
	·	establishment of market presence through direct marketing, purchase of existing loan portfolios, and/or third-party origination agreements;
	·	development of long-term customer relationships;
	·	creation of customized niche products and solutions to support identified customer needs and opportunities in the marketplace;
	·	effective capital and funding structures to maximize returns;
	·	development of mutually beneficial funding and origination partner relationships to expand Company loan volumes and margins over time; and
	·	evaluation of strategic acquisition(s) that align with our initiatives.

We face competition from other entities that originate, purchase, securitize, or provide financing for Secured Loans. These entities include commercial and investment banks, insurance companies, Farm Credit System institutions, and financial funds.

We plan to compete by controlling overhead costs and by sourcing competitive cost of funds to blend with equity capital to provide flexible financing options and products designed to meet the varied needs of our customers.

The relative competitiveness of our loan rates and our ability to grow loan volume are affected by many factors, including:

	·	demand for lending products we offer;
	·	available capital; and
	·	liquidity and cost of funds from third-party funding sources.

We continue to explore other strategic options to maximize shareholder value. Potential strategic alternatives that may be evaluated include, but are not limited to, an acquisition, merger, business combination, in-licensing, start-up of new business or other strategic initiatives. There can be no assurance that this process will result in any transaction or other initiatives.

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Recent Developments

On August 4, 2023 we changed our name from “Insignia Systems, Inc.” and reincorporated from Minnesota to Delaware. As part of the name change, our common stock now trades under the symbol “LDWY” on The Nasdaq Stock Market LLC.

On August 3, 2023, we completed the sale of certain assets and certain liabilities relating to our business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “Legacy Business”) for a cash purchase price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement (the “Purchase Agreement”). We retained accounts receivable, as well as cash, cash equivalents and marketable securities. The purchase price is subject to a post-closing adjustment depending on the net balance of (i) cash received by us for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments we made to vendors for unexecuted programs. We received significant cash payments between July 1 and August 3, 2023 for unexecuted programs, which we will retain, but which will reduce the purchase price. Under the Purchase Agreement, $200,000 was escrowed for a twelve-month period for any future claims, as defined in the Purchase Agreement, by the Buyer against the Company.

We incurred approximately $350,000 of transaction-related costs that had not previously been expensed. We also incurred transaction-related severance and other separation benefits in connection with the termination of certain of our officers and employees of approximately $1,537,000, as well as retention award payouts totaling $143,000 and employee bonuses totaling $164,000, each of which will be recorded as expense in the three months ended September 30, 2023.

Business Overview

Summary of Financial Results

The operations of the Legacy Business will be presented as a discontinued operation beginning with the Quarterly Report on Form 10-Q for the three months ended September 30, 2023, the quarter in which the sale of the Legacy Business met the criteria as a discontinued operation. We have provided supplemental operating results on a pro forma basis below for a further description of the impact of the sale of the Legacy Business on the financial statements.

For the quarter ended June 30, 2023, we generated net sales of $6,211,000, as compared with net sales of $3,254,000 for the quarter ended June 30, 2022. For the six months ended June 30, 2023, we generated net sales of $19,042,000, as compared with net sales of $9,402,000 in the six months ended June 30, 2022. Net loss for the quarter ended June 30, 2023 was $36,000, as compared to a net loss of $1,084,000 for the quarter ended June 30, 2022. Net income for the six months ended June 30, 2023 was $1,612,000, as compared to a net loss of $1,022,000 for the six months ended June 30, 2022.

Our non-bank lending business had no revenue and had incremental general and administrative expenses of $101,000 for the three months ended June 30, 2023.

During the six months ended June 30, 2023, cash and cash equivalents and restricted cash decreased by $3,020,000 from $14,524,000 at December 31, 2022, to $11,504,000 at June 30, 2023. The decrease was primarily driven by an increase in accounts receivable from December 31, 2022. We had no debt other than our lease obligations at June 30, 2023. Working capital increased $1,652,000 from $13,379,000 at December 31, 2022 to $15,031,000 at June 30, 2023.

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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						Six Months Ended
	June 30						June 30
	2023			2022			2023			2022
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		73.9			87.2			76.1			82.0
Gross profit		26.1			12.8			23.9			18.0
Operating expenses:
Selling		5.8			8.9			3.8			6.7
Marketing		4.8			8.6			3.1			5.7
General and administrative		18.2			29.1			9.8			16.5
Total operating expenses		28.8			46.6			16.7			28.9
Operating (loss) income

SEC Form 10-Q filed by Insignia Systems Inc.