10-Q: Lendway Q1 Loss Widens on Revenue Drop, Higher Costs

Lendway, Inc. reported a significantly wider net loss in its first fiscal quarter, driven by a substantial revenue decline and increased operating expenses, despite strategic inventory build-up.

Summary

• Lendway, Inc. reported a net loss attributable to the company of $2,854,000 for the three months ended September 30, 2025, a significant increase from a net loss of $1,125,000 in the prior year period.
• Revenue decreased by 22.3% to $5,153,000 from $6,628,000 in the same quarter last year, primarily due to strategically growing tulips earlier for Mother's Day demand and purchasing fewer Dutch bulbs in 2024.
• The company recorded a gross loss of $60,000, or (1.2)% of revenue, compared to a gross profit of $1,440,000, or 21.7% of revenue, in the prior year, impacted by fixed costs, higher average bulb prices, tariffs, and freight costs.
• Operating loss widened to $3,043,000 from $1,351,000 year-over-year.
• EBITDA was a loss of $2,390,000, compared to a loss of $574,000 in the prior year period.
• Cash and cash equivalents increased to $1,840,000 at September 30, 2025, from $906,000 at June 30, 2025.
• Inventories significantly increased to $18,799,000 from $6,697,000, reflecting substantial bulb purchases for future sales.
• Working capital improved to $11,264,000 from $1,098,000, driven by the inventory build-up, partially offset by lower accounts receivable.
• Net cash used in operating activities increased to $9,927,000 from $7,555,000, mainly due to higher Euro-priced bulb purchases and unfavorable exchange rate effects.
• The company secured $4,000,000 in new related party promissory notes and drew $8,575,000 on its revolving credit facility to fund bulb purchases and operations.

Sentiment

Score: 3

Explanation: The company experienced a substantial widening of its net loss, a significant drop in revenue, and a shift from gross profit to gross loss. Operating cash flow worsened, and debt levels increased. While management attributes some of this to seasonality and strategic inventory build-up for future quarters, the current quarter's performance is poor. New risks related to seasonal labor and ongoing capital needs add to the negative sentiment.

Positives

• Cash and cash equivalents increased to $1,840,000 at September 30, 2025, from $906,000 at June 30, 2025.
• Inventories significantly increased to $18,799,000 from $6,697,000, indicating a strategic build-up of bulbs for future sales.
• Working capital improved to $11,264,000 at September 30, 2025, from $1,098,000 at June 30, 2025.
• The revolving credit facility capacity was temporarily increased from $6,000,000 to $10,000,000 until April 30, 2026, enhancing liquidity.
• Management expects revenue and gross margin to improve in the remaining quarters of fiscal year 2026 due to increased bulb inventory.

Negatives

• Net loss attributable to Lendway, Inc. widened significantly to $2,854,000 from $1,125,000 year-over-year.
• Revenue decreased by 22.3% to $5,153,000 from $6,628,000, attributed to strategic timing of tulip growth and fewer Dutch bulb purchases in the prior year.
• The company reported a gross loss of $60,000, or (1.2)% of revenue, a substantial decline from a gross profit of $1,440,000, or 21.7% of revenue, in the comparable period.
• Operating loss increased to $3,043,000 from $1,351,000.
• EBITDA was a loss of $2,390,000, worsening from a loss of $574,000 in the prior year.
• Net cash used in operating activities increased to $9,927,000 from $7,555,000, primarily due to higher bulb purchase costs and unfavorable foreign exchange rates.
• Total long-term liabilities increased to $79,363,000 from $67,514,000, driven by increased long-term debt and new related party notes.
• Interest expense, net, increased to $822,000 from $800,000 due to higher debt levels and increased interest rates on related party notes.
• Foreign currency transaction loss increased to $253,000 from $46,000.

Risks

• Concentration of revenue among a small number of customers (three customers accounted for 32%, 19%, and 18% of revenues in Q1 2026; two customers accounted for 29% and 18% of accounts receivable). The loss of a major customer could adversely affect operating results and financial condition.
• Dependency on Dutch tulip bulbs for supply.
• Exposure to changes in interest rates on variable-rate debt.
• Ability to comply with covenants and restrictions under the Amended Credit Agreement.
• Potential impact of economic and market conditions on business opportunities.
• Ability to develop and maintain necessary processes and controls.
• Reliance on one or a small number of employees.
• Ability to generate sufficient cash or secure adequate capital to execute business plans.
• Challenges in obtaining seasonal workers, particularly through the H-2A agricultural guest worker program, which could lead to lower production or higher labor costs, exacerbated by the federal government shutdown.
• Exposure to exchange rate fluctuations, especially for Euro-denominated bulb purchases.
• Impact of tariffs on costs.
• Availability of additional capital on desirable terms, if at all, which could hinder business growth or strategic transactions.

Future Outlook

Management expects revenue and gross margin to improve in the remaining quarters of fiscal year 2026 as the company has more bulbs in inventory to grow into stems for sale, subject to normal growing risks. The company anticipates being in compliance with its financial covenants for at least the next twelve months.

Management Comments

• "Management expects revenue to increase in the remaining quarters of fiscal year 2026 as a result of more bulbs in inventory which the Company will grow into stems to sell, subject to normal growing risks."
• "Management expects gross margin to improve in the remaining quarters of fiscal year 2026 as the Company has more bulbs to grow into stems to sell."
• "The Company expects to be in compliance with these financial covenants for at least the next twelve months."

Industry Context

Lendway operates in the specialty agricultural sector, specifically focusing on fresh-cut tulips through its Bloomia subsidiary. The industry is characterized by seasonality, with peak sales in the spring (Q1/Q2 calendar year). The company's strategy of domestic growing aims to leverage lower freight costs and tariffs compared to importing stems, positioning it for higher margins. However, it remains highly dependent on bulb sourcing from international markets (Netherlands, Chile, New Zealand) and is exposed to foreign exchange rate fluctuations and tariffs. Customer concentration with a few mass-market retailers is a significant factor, common in industries supplying large retail chains. The reliance on seasonal labor, particularly through programs like H-2A, highlights a vulnerability to government policy and economic conditions.

Corporate Governance

Related Party Transactions

• **2024 Note with Air T Inc.**: Air T Inc. beneficially owns greater than 10% of outstanding Common Stock and is part of a group owning approximately 40%. The company has an unsecured Delayed Draw Term Note with Air T for up to $3,750,000 at 8.0% fixed interest (PIK), maturing August 15, 2029, with Air T having the right to demand payment after February 15, 2026. Balance outstanding was $2,150,000 as of September 30, 2025.
• **2025 Notes with Air T, AO Partners I, L.P., and Gary S. Kohler**: Totaling $4,000,000 at 13.5% fixed interest (PIK), maturing June 1, 2027. Gary S. Kohler is Chief Investment Officer and Portfolio Manager of BCCM Advisors, LLC, which beneficially owned approximately 8.9% of common stock. Air T is a significant shareholder. Mark R. Jundt and Daniel C. Philp (Co-Chief Executive Officers) and Nicholas J. Swenson (Director) also hold positions at Air T. These notes were approved by the Audit Committee and independent directors.

Stakeholder Impact

• **Shareholders**: Significant net loss and increased debt could negatively impact shareholder value. Potential dilution from future equity raises is also a concern.
• **Employees**: Potential delays in obtaining seasonal H-2A workers due to government shutdown could impact labor availability and potentially lead to higher labor costs, affecting employee workload or compensation.
• **Customers**: Strategic timing of tulip growth for Mother's Day demand suggests efforts to meet key seasonal customer needs. However, customer concentration remains a risk.
• **Suppliers**: Increased inventory purchases, especially Dutch tulip bulbs, indicate continued strong relationships with suppliers, but also exposure to foreign exchange rates and tariffs.
• **Creditors**: Increased debt levels, including related party notes, and a widening net loss could raise concerns for creditors, although the company expects to remain in compliance with covenants.

Next Steps

• Grow more bulbs from increased inventory into stems for sale in the remaining quarters of fiscal year 2026.
• Receive first payment of $120,000 on March 1, 2026, from a three-year agreement to supply tulips.
• Monitor and manage compliance with financial covenants under the Amended Credit Agreement.
• Address potential impacts of the government shutdown on obtaining seasonal H-2A workers.
• Evaluate potential needs for additional capital through equity or debt financing.

Key Dates

Recommendation

The company reported a substantial widening of its net loss, a significant revenue decline, and a shift from gross profit to gross loss. Operating cash flow worsened considerably, and debt levels increased, including new high-interest related party notes. While management attributes some of the poor performance to seasonality and strategic inventory build-up for future quarters, the current financial results are very weak. New risks, such as potential delays in seasonal labor due to government shutdown and the explicit mention of needing additional capital, further cloud the outlook. The high customer concentration and exposure to foreign exchange and tariffs add to the risk profile. Given the severe underperformance and increased financial leverage, a seasoned investor would likely recommend selling the stock.

Keywords

Tulips, Agriculture, Specialty Agriculture, Bloomia, SEC Filing, 10-Q, Financial Results, Net Loss, Revenue Decline, Inventory, Working Capital, Debt Financing, Related Party Transactions, Seasonal Business, H-2A Program, Supply Chain, Tariffs, Foreign Exchange