SCHEDULE: Lendway Secures $6.3M in New Debt from Major Shareholders

Lendway, Inc. has secured an additional $6.3 million in debt financing from Air T, Inc. and AO Partners I, L.P., increasing its total beneficial ownership by a group led by Nicholas J. Swenson to 39.6%.

Summary

• Reporting Persons (Air T, Inc. and the Swenson Group) beneficially own 701,275 shares of Lendway Common Stock, representing 39.6% of the outstanding shares.
• The total cost for purchasing these shares was approximately $7,371,211, funded by working capital or personal funds.
• Lendway entered into an Amended and Restated Delayed Draw Term Note with Air T, increasing the principal amount to $3,500,000 from an initial $2,500,000.
• This Amended Note bears an 8% annual interest rate and matures on August 15, 2029, or earlier if demanded by Air T after February 15, 2026.
• Lendway also secured two Promissory Notes dated September 15, 2025, totaling $2,800,000 ($1,699,844 from AO Partners I, L.P. and $1,100,156 from Air T, Inc.).
• These Promissory Notes bear a 13.5% annual interest rate and mature on June 1, 2027.
• Lenders of the Promissory Notes may appoint one non-voting observer to Lendway's board of directors until the notes are fully repaid.
• AO Partners Fund has pledged 139,444 shares of Common Stock as collateral for a bank loan.

Sentiment

Score: 5

Explanation: The filing indicates a company relying on high-interest debt from related parties for funding, which provides necessary capital but also increases financial risk and cost of capital. The 'control purpose' statement and board observer rights suggest increased influence by the reporting group. It's neutral in terms of immediate operational performance but highlights financial leverage and shareholder dynamics.

Positives

• Lendway, Inc. secured $6.3 million in additional debt financing, providing capital for operations and growth.
• The financing demonstrates continued support from significant shareholders, including Air T, Inc. and entities controlled by Nicholas J. Swenson.
• The Delayed Draw Term Note allows Lendway to request loans as needed until August 15, 2026, offering flexible access to capital.

Negatives

• Lendway has taken on significant new debt, totaling $6.3 million from related parties, which will increase its interest expense.
• The Promissory Notes carry a high interest rate of 13.5% per annum, indicating a higher cost of capital for Lendway.
• The Delayed Draw Term Note includes a provision allowing Air T to demand full repayment on or after February 15, 2026, potentially creating liquidity risk for Lendway.
• The pledging of 139,444 shares of Common Stock by AO Partners Fund as collateral for a bank loan could indicate financial leverage within the reporting group.

Risks

• Increased debt burden for Lendway, Inc. with new notes totaling $6.3 million, potentially impacting financial stability and cash flow.
• High interest rates on the Promissory Notes (13.5%) will lead to substantial interest expenses, reducing profitability.
• The Delayed Draw Term Note's demand clause, allowing Air T to call the loan after February 15, 2026, introduces refinancing or liquidity risk for Lendway.
• The "control purpose" statement by Reporting Persons suggests potential for future actions that could influence company direction, which may not always align with all shareholders' interests.
• Pledging of 139,444 shares by AO Partners Fund as collateral for a bank loan could lead to forced sales if the loan defaults, potentially impacting market dynamics.

Future Outlook

Reporting Persons may acquire additional shares or dispose of current holdings, and may engage in short selling or hedging. Lendway, Inc. has access to a $3.5 million delayed draw facility until August 2026 and has taken on $2.8 million in new promissory notes, indicating a focus on funding operations and growth.

Management Comments

• The Reporting Persons purchased the Common Stock for investment purposes.
• The Reporting Persons may in the future acquire additional shares of Common Stock of the Company or dispose of some or all of the shares of Common Stock of the Company held by them in open-market transactions or privately negotiated transactions, on such terms and at such times as the Reporting Persons may deem advisable, subject to applicable law.
• The Reporting Persons may engage in short selling or hedging or similar transactions with respect to the shares of Common Stock, on such terms and at such times as the Reporting Persons may deem advisable, subject to applicable law.
• To the extent the actions described herein may be deemed to constitute a 'control purpose' with respect to the Securities Exchange Act of 1934, as amended, and the regulations thereunder, the Reporting Persons have such a purpose.
• Air T and the Swenson Group expressly disclaim membership in a group, as Mr. Swenson does not possess voting or dispositive power over the shares of Common Stock held by Air T.

Industry Context

This filing indicates a company, Lendway, Inc., relying on significant debt financing from its major shareholders to fund operations and growth. This is common for smaller or developing companies that may not have easy access to traditional bank financing or public equity markets, especially when major shareholders have a "control purpose." The high interest rates on the promissory notes (13.5%) suggest a higher risk profile or limited alternative financing options for Lendway compared to established companies with lower cost of capital.

Comparison to Industry Standards

• The 13.5% interest rate on the Promissory Notes is significantly higher than typical corporate debt rates for financially stable companies, suggesting Lendway may be perceived as a higher credit risk or has limited access to conventional financing. For example, investment-grade corporate bonds often yield 4-7%, while high-yield (junk) bonds might range from 7-12%.
• The provision for lenders to appoint a non-voting board observer is a common protective covenant in private debt deals, particularly for companies with significant shareholder debt, but less common for publicly traded companies with robust independent governance.
• The "control purpose" statement, while legally required if applicable, highlights a potentially more active role by the reporting group in Lendway's strategic direction, which can be a deviation from the passive investment typical of many institutional shareholders.

Corporate Governance

Related Party Transactions

• Air T, Inc. (where Nicholas J. Swenson is CEO and Director) provided a Delayed Draw Term Note to Lendway, Inc., amended to $3,500,000.
• AO Partners I, L.P. (part of the Swenson Group controlled by Nicholas J. Swenson) provided a Promissory Note of $1,699,844 to Lendway, Inc.
• Air T, Inc. also provided a Promissory Note of $1,100,156 to Lendway, Inc.
• Nicholas J. Swenson, as Managing Member of Groveland Capital and AO Partners, and sole owner of Glenhurst, controls entities that are significant shareholders and lenders to Lendway.
• Mr. Swenson is indemnified by AO Partners Fund, AO Partners, Groveland Capital, and Glenhurst for liabilities incurred in his duties for the Swenson Group.

Stakeholder Impact

• Shareholders: Increased debt and high interest rates could dilute future earnings per share. The "control purpose" statement and board observer rights indicate increased influence by a specific shareholder group, potentially affecting minority shareholder interests.
• Creditors: The new debt from related parties, particularly the Delayed Draw Term Note's senior priority, could affect the recovery prospects of other unsecured creditors.
• Management: The board observer role for lenders could add an additional layer of oversight and reporting requirements for management.

Next Steps

• Lendway, Inc. may request further loans under the Delayed Draw Term Note until August 15, 2026.
• Reporting Persons may acquire or dispose of additional shares of Common Stock, or engage in short selling or hedging transactions.
• Lenders of the Promissory Notes may appoint a non-voting observer to Lendway's board of directors.

Key Dates

Recommendation

The filing indicates that Lendway, Inc. has secured crucial debt financing from its major shareholders, which provides necessary capital for operations and growth. However, the high interest rates on the new promissory notes (13.5%) and the potential for Air T to demand early repayment on the Delayed Draw Term Note introduce significant financial risk and increase the cost of capital. While the capital infusion is positive for liquidity, the terms suggest a challenging financing environment for Lendway and increased leverage. The 'control purpose' statement and board observer rights also signal a more active role by the reporting group, which could be a double-edged sword. Given the mixed signals of necessary capital versus increased financial risk and shareholder influence, a 'hold' recommendation is appropriate until there is clearer evidence of how this capital will translate into sustainable growth and improved financial health, and how the increased shareholder influence will impact corporate strategy.

Keywords

Lendway, Air T, Schedule 13D, Debt Financing, Promissory Note, Delayed Draw Term Note, Beneficial Ownership, Nicholas J. Swenson, Corporate Governance, Related Party Transaction, Investment, SEC Filing