LENDWAY, INC. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 ______________________________

FORM 10-Q

for the quarterly period ended September 30, 2023

or

for the transition period from ___________ to ____________

Commission File Number:  1-13471

Securities registered to Section 12(b) of the Act:

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.:

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 8, 2023 was 1,745,736.

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 “In-Store Marketing Business”) for a sale price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement dated May 24, 2023 (the “Purchase Agreement”). The Company retained accounts receivable, as well as all cash, cash equivalents and marketable securities, and certain liabilities. The cash consideration for the sale was subject to a post-closing adjustment that depended on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs.

The operations of the In-Store Marketing Business are presented as a discontinued operations beginning with this Quarterly Report on Form 10-Q for the three months ended September 30, 2023, the quarter in which the sale of the In-Store Marketing Business met the criteria as discontinued operations. All previous periods presented have been restated to present the In-Store Marketing Business as discontinued operations. See Note 2 of the Notes to the Condensed Consolidated Financial Statements appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q for a further description of the impacts of the sale of the In-Store Marketing Business on the condensed consolidated financial statements.

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

Lendway, Inc.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lendway, Inc. and Subsidiaries

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

As described in Note 2, on August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s legacy business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “In-Store Marketing 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 operations of the In-Store Marketing Business are presented as discontinued operations beginning with this Quarterly Report on Form 10-Q for the three months ended September 30, 2023, the period in which the sale of the In-Store Marketing Business met the criteria as discontinued operations. All prior periods presented have been restated to present the In-Store Marketing Business as discontinued operations.

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

2. Sale of In-Store Marketing Business and Presentation as Discontinued Operations.

On August 3, 2023, the Company completed the sale of certain assets and certain liabilities relating to the Company’s In-Store Marketing Business for a price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement (the “Purchase Agreement”). The Company retained accounts receivable, as well as cash, cash equivalents and marketable securities. The cash consideration for the sale was subject to a post-closing adjustment depending on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs. Under the Purchase Agreement, $200,000 was escrowed for a twelve-month period for any future claims, as defined in the Purchase Agreement, by the Buyer against the Company.

Lendway, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The gain on sale of the In-Store Marketing Business before income taxes was determined as follows:

The Company incurred transaction-related severance and other separation benefits in connection with the termination of certain officers and employees of the discontinued operations of approximately $490,000, as well as retention award payouts totaling $343,000, of which $48,000 was included in continuing operations, and employee bonuses totaling $164,000, each of which was recorded as expense in the three months ended September 30, 2023.

The results of the In-Store Marketing Business have been presented as discontinued operations and the related assets and liabilities have been classified as related to discontinued operations for all periods presented.

The carrying amounts of major classes of assets and liabilities that were reclassified as related to discontinued operations on the Condensed Consolidated Balance Sheet were as follows:

Lendway, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Results of discontinued operations are summarized below:

The accounting policies for the discontinued In-Store Marketing Business, including for revenue recognition, are disclosed in the notes to financial statements included in the Company’s Annual Report on Form 10-K.

In July 2019, the Company filed suit against News Corporation, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (collectively, “News America”), alleging violations of federal and state antitrust and tort laws by News America. On July 1, 2022, the Company entered into a $20 million settlement agreement with News America. The agreement resulted in net proceeds before income tax of $12,000,000 for the Company, which was recorded as a gain on litigation settlement in the discontinued operations of the In-Store Marketing Business during the three months ended September 30, 2022.

For the three and nine months ended September 30, 2023, the Company recorded income tax expense on discontinued operations of $74,000 and $74,000, respectively. For the three and nine months ended September 30, 2022, the Company recorded income tax benefit from discontinued operations of $191,000 and $173,000 respectively. The income tax benefit for 2022 included a decrease of approximately $678,000 in unrecognized tax benefits related to state exposure in the third quarter of 2022, which reduced accrued income taxes and increased the current tax benefit.

Lendway, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Summary of Significant Accounting Policies.

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

Subsequent to September 30, 2023 the restriction on the cash was released back to the Company, as it was related to a lease that transferred to the Buyer of the In-Store Marketing Business.

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

During the nine-month periods ended September 30, 2023 and 2022 no equity awards were issued by the Company, except those awarded to non-employee members of the Board of Directors in August 2022.

In August 2022, non-employee members of the Board of Directors received restricted stock grants totaling 6,248 shares pursuant to the 2018 Equity Incentive Plan (the “2018 Plan”). The shares underlying the awards were assigned a value of $9.60 per share, which was the closing price of the Company’s common stock on the date of grant, for a total grant date value of $60,000. The shares vested on July 26, 2023.

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

The Company estimated the fair value of stock-based awards granted during the three and nine months ended September 30, 2023, under the Company’s employee stock purchase plan using the following weighted average assumptions: expected life of 1.0 year, expected volatility of 95.2%, dividend yield of 0% and risk-free interest rate of 4.7%. Due to the sale of the In-Store Marketing Business, the plan year for the Company’s employee stock purchase plan was amended to end on July 31, 2023. At July 31, 2023 participants purchased 338 shares.

During the three months ended September 30, 2023, the Company issued 22,382 shares of common stock in settlement of $148,000 of total deferred fees due to two non-employee director’s departure from the Board of Directors.

Total stock-based compensation expense recorded for the three and nine months ended September 30, 2023 was $7,000 and $43,000, respectively, and for the three and nine months ended September 30, 2022 was $32,000 and $91,000, 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.

In determining diluted net income (loss) per share, whether net income from continuing operations is positive or negative controls whether dilutive shares are included in the determination. For all periods presented, net income from continuing operations is negative, a net loss. Accordingly, since including dilutive shares would dilute the loss from continuing operations, no dilutive shares are included in any of the per share calculations.

Lendway, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Due to the net loss from continuing operations incurred during the three and nine months ended September 30, 2023 and 2022, all outstanding stock awards were considered anti-dilutive for those periods. At September 30, 2022 and 2023 options to purchase 14,086 shares of common stock with a weighted average exercise price of $14.17, were outstanding.

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

Restructuring. In connection with the change in the Company’s strategy to the Lending Business, the Company’s prior CEO, Kristine A. Glancy, departed on August 31, 2023. Included in general and administrative expense of continuing operations is expense of $926,000 relating to change of control and other severance related payments and benefits to Ms. Glancy. As of September 30, 2023, $650,000 remains to be paid to Ms. Glancy and is included in accrued compensation.

4. Leases.

At September 30, 2023, the Company has a month-to-month operating lease with a related party with monthly payments of $375. As part of the sale of the in-store marketing business, the headquarters lease was assigned to the Buyer as a part of the sale of the In-Store Marketing Business, and the other significant lease was terminated. The amounts included in “Other” below relate to an office lease that was terminated effective September 30, 2023.

The cost components in continuing operations of the Company’s operating leases were as follows for the three and nine month periods ended September 30, 2023 and 2022:

5. Income Taxes.

For the three and nine months ended September 30, 2023, the Company recorded income tax (benefit) of $(11,000) and $(4,000), respectively, or 0.6% and 0.1% of loss from continuing operations before taxes, respectively. For the three and nine months ended September 30, 2022, the Company recorded income tax expense of $1,000 and $5,000 respectively, or (0.2)% and (0.3)% of loss from continuing operations before taxes, respectively. The income tax expense (benefit) for the three and nine months ended September 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 income (loss). The actual tax expense attributable to from continuing operations income before taxes differs from the expected tax expense computed by applying the U.S. federal corporate income tax rate of 21% as follows:

Lendway, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 September 30, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $41,000 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 $41,000. The Company recorded a decrease of $16,000 in unrecognized tax benefits related to state income tax exposure in the third quarter of 2023 which reduced accrued income taxes and increased income tax benefit.  

At December 31, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $2,900,000. As of September 30, 2023, the Company estimates remaining Federal NOL carryforwards to be approximately $1,390,000. 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.

6. Stock Repurchase Plan.

On August 28, 2023, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock. The plan allows the purchases to be made in the open market or in privately negotiated transactions. The plan does not obligate the Company to repurchase any particular number of shares; and may be suspended anytime at the Company’s discretion.

For the three months ended September 30, 2023 the Company repurchased 75,345 shares for $437,000.

7. 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.

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 (our “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”). In April 2023, we announced the launch of our Lending Business, through the hiring of a Senior Vice President of Lending with over 20 years of experience in credit and lending.

Initially, we intend to focus on loans secured by real estate, primarily for agricultural purposes. We 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 Lending Business are expected to consist of:

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

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:

During the third quarter, the Company increased its marketing activity and met with a number of prospects. We anticipate minimal revenue and losses from continuing operations for the remainder of 2023.

We continue to explore other strategic options to maximize stockholder 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.

Recent Developments

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

On August 3, 2023, we sold certain assets and certain liabilities relating to our former business of providing in-store advertising solutions to brands, retailers, shopper marketing agencies and brokerages (the “In-Store Marketing Business”) for a sale price of $3.5 million to TIMIBO LLC, an affiliate of Park Printing, Inc. (the “Buyer”), under an Asset Purchase Agreement dated May 24, 2023 (the “Purchase Agreement”). The Company retained accounts receivable, as well as all cash, cash equivalents and marketable securities. The cash consideration for the sale was subject to a post-closing adjustment that depended on the net balance of (i) cash received by the Company for programs that remained unexecuted as of August 3, 2023, minus (ii) the payments made by the Company to vendors for unexecuted programs. The final purchase adjustment for the net balance was to reduce the cash consideration by $1.5 million, with the Company retaining an equal amount of cash that had been received for unexecuted programs. Under the Purchase Agreement, $200,000 was escrowed for a twelve month period for any future claims, as defined in the Purchase Agreement by the Buyer against the Company.

We also incurred transaction-related severance and other separation benefits in connection with the termination of certain of our officers and employees of approximately $1,416,000, $490,000 of which was attributed to the sale of the In-Store Marketing Business, as well as retention award payouts totaling $343,000 and employee bonuses totaling $164,000, each of which were recorded as expense in the three months ended September 30, 2023. The sum of transaction-related severance, retention awards and bonuses was $1,923,000, of which $974,000 was recorded in continuing operations and $949,000 was recorded in discontinued operations in the three months ended September 30,2023.

Business Overview

Summary of Financial Results

For the three and nine months ended September 30, 2023, continuing operations, the Lending Business, had no revenue.

During the nine months ended September 30, 2023, cash and cash equivalents and restricted cash increased by $515,000 from $14,524,000 at December 31, 2022, to $15,039,000 at September 30, 2023. The increase was primarily driven by collections of accounts receivable from discontinuing the In-Store Marketing Business, as well as proceeds from the sale of the In-Store Marketing Business. We had no debt at September 30, 2023. Working capital increased $2,513,000 from $13,379,000 at December 31, 2022 to $15,892,000 at September 30, 2023.

Results of Operations

The following table sets forth, for the periods indicated, certain items from our continuing operations in our condensed consolidated statements of operations and the percentage change year-over-year. The Company had no revenue from continuing operations.

Three and Nine Months Ended September 30, 2023 Compared to Three and Nine Months Ended September 30, 2022

Operating Expenses

Sales and Marketing. Sales and marketing expenses for the three and nine months ended September 30, 2023 were $69,000 and $134,000, consisting of a portion of our CEO’s compensation, as well as website and public relations costs. There was no comparable expense for the three and nine months ended September 30, 2022.

General and administrative. General and administrative expenses for the three months ended September 30, 2023 increased 220.5% to $1,564,000 compared to $488,000 for the three months ended September 30, 2022. The increase was primarily due to transaction-related severance and other separation benefits amounting to $926,000 in connection with the termination of Kristine Glancy, our previous CEO. General and administrative expenses for the nine months ended September 30, 2023 increased 71.3% to $2,849,000 compared to $1,663,000 for the nine months ended September 30, 2022. The increase was primarily due to transaction-related severance and other separation benefits in connection with the termination of Kristine Glancy, mentioned above, in addition to the comparison of reduced expense in 2022 from the Director Deferred Compensation Plan due to a reduction in our share price during the nine months ended September 30, 2022. We are working with all our vendors and service providers to reduce certain expenses going forward.

Interest Income. Interest income for the three months ended September 30, 2023 was $111,000 compared to $55,000 for the three months ended September 30, 2022. Interest income for the nine months ended September 30, 2023 was $325,000 compared to $55,000 for the nine months ended September 30, 2022. Interest income in 2023 increased over 2022 primarily due to higher invested balances, which included the net proceeds from litigation of $12 million received in July 2022 and the higher interest rates available on investment in short-term treasury bills and interest-bearing savings.

Income Taxes. For the three and nine months ended September 30, 2023 the Company recorded income tax (benefit) of $(11,000) and $(4,000) respectively, or 0.6% and 0.1% of loss from continuing operations before income before taxes, respectively. For the three and nine months ended September 30, 2022 the Company recorded income tax expense of $1,000 and $5,000 respectively, or (0.2)% and (0.3)% of loss from continuing operations before income before taxes, respectively. The income tax expense (benefit) for the three and nine months ended September 30, 2023 and 2022 comprises federal and state income taxes. The primary differences between the Company’s September 30, 2023 and 2022 effective tax rates and the statutory federal rate are state income taxes and  changes in the Company’s valuation allowance against its deferred tax assets.

The Company reassesses its effective tax rate each reporting period and adjusts the annual effective rate if deemed necessary, based on projected annual taxable income (loss).

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

As of September 30, 2023, and December 31, 2022, the Company had unrecognized tax benefits totaling $41,000 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 $41,000.

At December 31, 2022, the Company had Federal net operating loss (NOL) to carry forward of approximately $2,900,000. As of September 30, 2023, the Company estimates remaining Federal NOL carryforwards to be approximately $1,390,000. 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.

Net Loss from Continuing Operations. For the reasons stated above, net loss from continuing operations for the three months ended September 30, 2023 was $1,511,000 and net loss from continuing operations for the nine months ended September 30, 2023 was $2,654,000, compared to net loss from continuing operations of $434,000 and $1,613,000, respectively, for the three and nine months ending September 30, 2022. As we seek to grow our Lending Business, we anticipate minimal revenue and losses from continuing operations for the remainder of the year.

Liquidity and Capital Resources

We have historically financed our operations with proceeds from stock sales and sales of our services and products, subject to occasional supplemental proceeds from the settlement of litigation. The sale of the In-Store Marketing Business on August 3, 2023 generated approximately $1.6 million of cash, directly from the buyer. At September 30, 2023, working capital (current assets less current liabilities) was $15,892,000, compared to $13,379,000 at December 31, 2022. During the nine months ended September 30, 2023, cash and cash equivalents and restricted cash increased $515,000 from $14,524,000 at December 31, 2022 to $15,039,000 at September 30, 2023.

Operating Activities. Net cash used in continuing operating activities during the nine months ended September 30, 2023, was $2,325,000. Net income of $2,738,000, less income from discontinued operations of $2,422,000, less the gain from the sale of discontinued operations of $2,970,000, plus non-cash adjustments of $46,000, plus changes in operating assets and liabilities of $283,000, resulted in the $2,325,000 of cash used in operating activities. The non-cash adjustments consisted of depreciation expense and stock-based compensation expense. The largest component of the change in operating assets and liabilities was accrued liabilities, which increased $630,000 from December 31, 2022. The increase was primarily due to the $650,000 of severance related payments that remains to be paid to the Company’s prior CEO, Ms. Glancy.

Investing Activities. Net cash provided by investing activities from continuing operations during the nine months ended September 30, 2023 was $1,557,000, which was due to the proceeds from the sale of our In-Store Marketing Business.

Financing Activities. Net cash used in financing activities during the nine months ended September 30, 2023 was $428,000, which related to cash used for the repurchase of common stock, partially offset by proceeds from the issuance of shares per the Director Deferred Compensation Plan for two former non-employee directors.

Cash and cash equivalents plus restricted cash at September 30, 2023 were $15.0 million. The Company believes that based upon current business conditions and plans, its cash and cash equivalents balances will be sufficient for its cash requirements for at least the next 12 months.

On August 28, 2023, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock. The plan allows the purchases to be made in the open market or in privately negotiated transactions. The plan does not obligate the Company to repurchase any particular number of shares and may be suspended anytime at the Company’s discretion. In the three months ended September 30, 2023, the Company repurchased 75,345 shares at a total cost of $437,000.

As the Company grows its Lending Business, we may be required to finance this process through equity offerings or debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the U.S. and worldwide. If we are unable to raise additional funds when needed we may not be able to grow our Lending Business, or complete transactions related to the strategic alternatives process.

Critical Accounting Estimates

Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to allowance for doubtful accounts, income taxes, sales tax, and stock-based compensation expense. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements.

Our significant accounting policies are described in Note 1 to the annual financial statements included in Part II, Item 8 of our Annual Report on Form 10-K as of and for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 9, 2023. We believe our most critical accounting estimates include the following:

Cautionary Statement Regarding Forward-Looking Statements

Certain statements made in this Quarterly Report on Form 10-Q, in the Company’s other SEC filings, in press releases and in oral statements to stockholders and securities analysts that are not statements of historical or current facts are “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of the Company to be materially different from the results or performance expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “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 and cash generated by operations will provide adequate liquidity and capital resources for at least the next twelve months; and (ii) our belief that we will reduce certain expenses going forward. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. These statements are subject to the risks and uncertainties that could cause actual results to differ materially and adversely from the forward-looking statements. These forward-looking statements are based on current information, which we have assessed and which by its nature is dynamic and subject to rapid and even abrupt changes.

Factors that could cause our estimates and assumptions as to future performance, and our actual results, to differ materially include the following: Forward-looking statements involve known and unknown risks, uncertainties and other factors, including: (1) the availability of strategic alternatives on acceptable terms, if at all, (2) the limited history of our Lending Business, (3) the substantial risk of loss associated with lending generally, (4) market conditions that may restrict or delay appropriate or desirable Lending Business opportunities, (5) our ability to develop and maintain necessary processes and controls relating to our Lending Business (6) reliance on one or a small number of employees, (7) potential adverse classifications of our Company if we are unsuccessful in executing our business plan, (8) other economic, business, market, financial, competitive and/or regulatory factors affecting the Company’s business generally; and (9) our ability to attract and retain highly qualified managerial, operational and sales personnel. Our risks and uncertainties also include, but are not limited to, the risks presented in our Annual Report on Form 10-K for the year ended December 31, 2022 and this Quarterly Report on Form 10-Q, and any additional risks presented in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K. We undertake no obligation (and expressly disclaim any such obligation) to update forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to update reasons why actual results would differ from those anticipated in any such forward-looking statements, other than as required by law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and its principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s principal executive officer and its principal financial officer concluded that the Company’s disclosure controls and procedures as of September 30, 2023 were effective.

Changes in Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting occurred during the third quarter of 2023 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries are a party or of which any of our property is the subject.

Item 1A. Risk Factors

Except as set forth below there have been no material changes in our risk factors from those previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

RISKS RELATING TO OUR BUSINESS

Our new lending business has limited history.

Our Non-Bank Lending business (our “Lending Business”) is recently formed and has no operating history and has generated no revenues through September 30, 2023. This lack of operating history makes it difficult to evaluate our future prospects and the risks and challenges we may encounter. There is no assurance that we can generate significant revenues in the non-bank lending marketplace, and even if revenues are generated there is no assurance that we can earn a profit from this new business. Because our Lending Business’s activities are in a very early stage, we can neither predict all potential risks nor assess the potential effects of those risks on our Lending Business’s, operating results, and financial condition or how much any factor, or combination of factors, could have an adverse effect on our business, results of operations and financial condition.

Non-bank lending involves a substantial risk of loss.

Our Lending Business intends to assume the ultimate credit risk of borrower defaults on its future planned loan assets, and our Lending Business’s earnings, which come from net interest income and fees on those assets, depend significantly on their performance. Widespread and sustained repayment shortfalls on loans in our Lending Business’s portfolio could result in losses, particularly if the value of the available collateral does not cover our Lending Business’s exposure, and could materially and adversely affect our Lending Business’s, operations, operating results, financial condition, liquidity, or capital levels.

RISKS RELATING TO ECONOMY AND MARKET CONDITIONS

Market conditions may restrict or delay desirable non-bank lending opportunities.

Our Lending Business’s operating results, financial condition, and capital levels may be materially and adversely affected by external factors that may affect the price or marketability of our Lending Business’s planned products and services or our Lending Business’s ability to offer its products and services, including, but not limited to:

OPERATIONAL RISKS

Our Lending Business and related operations require development of new processes and controls.

Our Lending Business is exposed to operational risk due to the complex nature of its planned business operations and the processes and systems used to undertake its business activities and comply with regulatory requirements. Operational risks specific to our Lending Business include the risks of loss resulting from:

Any of the foregoing could have an adverse effect on our ability to conduct our Lending Business, and our results of operations and financial condition.

The success of our Lending Business initially will depend on one or a small number of employees.

Our Lending Business will rely on its employee’s breadth and depth of knowledge of lending businesses and related industries to run its planned business operations successfully. If our Lending Business cannot retain and attract motivated and qualified employees or does not have adequate human capital to achieve its business objectives, our Lending Business’s performance, operations, financial condition, or reputation could be materially adversely affected.

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

On August 28, 2023, the Company announced that its Board of Directors authorized the repurchase of up to 400,000 shares of the Company’s common stock. The Company may purchase shares of its common stock from time to time in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. Open market repurchases may be affected pursuant to Rule 10b5-1 trading plans. The manner, timing, number and prices of shares purchased under the authorization will be determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, general market and economic conditions, and applicable legal requirements. The authorization does not obligate the Company to acquire any particular amount of its common stock or to acquire shares on any particular timetable and may be suspended or discontinued at any time at the Company’s discretion.

Repurchase activity for the three months ended September 30, 2023 (excluding fees associated with the repurchases of approximately $1,000), was as follows:

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, 2023, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits