What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-23 compared with 2020-08-19 · 57 added, 57 removed, 102 unchanged (53% of the section changed)

51 unchanged sentences

Absent such commitment, the Lender advised that it may cease making discretionary advances to the Company.

On July 22, 2020, the Company’s board of directors (the “Board”) authorized the Company to seek such funding and, to ensure that the Company met the Lender’s equity funding commitment deadline, Mr.

Yubao Li, the Company’s Chairman, committed that, in the event the Company does not obtain funding of at least $3,000,000 by August 31, 2020, he would provide the necessary funding.

During 2020, warrants were issued in conjunction with the equity financing as described herein and the rebranding of the Company.

The majority of these warrants were exercised during July 2020.

During July 2020, Tradigital Marketing Group exercised 250,000 warrants in exchange for 171,000 shares of the Company’s common stock.

Also during July 2020, Garden State Securities and its executive managing director exercised a combined 250,000 warrants in exchange for 161,000 shares of the Company’s common stock.

During August 2020, an investor (Tobin) in the 2020 convertible preferred equity program exercised all 27,660 shares of convertible preferred stock into 276,600 shares of common stock.

An additional 11,000 shares of common stock were issued to the same investor representing the 8% interest on the convertible preferred shares.

On July 22, 2020, the Company’s board of directors authorized the Company to seek such funding and, to ensure that the Company met the Lender’s equity funding commitment deadline.

Yubao Li, the Company’s Chairman, committed that, in the event the Company does not obtain funding of at least $3,000,000, he would provide the necessary funding.

In September 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series B Convertible Preferred Stock (the terms of which are currently being negotiated and finalized).

Additionally, in October 2020, the Company received a $1.5 million advance on a separate proposed equity financing for which the terms have not yet been finalized.

The Lender has continued to make the Discretionary Advances throughout this period and has indicated that we have complied with their request.

Comparability

1 unchanged sentence

Therefore, as of July 19, 2019, the Board authorized management to divest these international subsidiaries.

These actions are being taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in North America.

These actions were taken to focus our resources and efforts on our core business activities, particularly foil balloons and ancillary products based in North America.

The Company determined that these entities met the held-for-sale and discontinued operations accounting criteria.

1 unchanged sentence

These changes have been applied for all periods presented.

The Company divested its CTI Balloons (United Kingdom) subsidiary in the fourth quarter 2019 and expects to divest its CTI Europe (Germany) subsidiary in September 2020.

The Company divested its CTI Balloons (United Kingdom) subsidiary in the fourth quarter 2019 and is divesting its CTI Europe (Germany) subsidiary and Ziploc product line in 2020.

Results of Operations

For the three and six month periods ended June 30, 2020, net sales were $5,745,000 and $12,813,000, compared to net sales of $9,202,000 and $17,882,000 for the same periods of 2019, respectively.

For the three month period ended June 30, 2020 and 2019, net sales by product category were as follows:

For the three and nine month periods ended September 30, 2020, net sales were $5,981,000 and $18,794,000, compared to net sales of $6,365,000 and $24,259,000 for the same periods of 2019, respectively.

For the three month period ended September 30, 2020 and 2019, net sales by product category were as follows:

Three Months Ended

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Product Category

1 unchanged sentence

(000) Omitted

Metalized Balloons

Foil Balloons

Latex Balloons

Film Products

For the six month period ended June 30, 2020 and 2019 net sales by product category were as follows:

Six Months Ended

June 30, 2020

June 30, 2019

For the nine month period ended September 30, 2020 and 2019 net sales by product category were as follows:

Nine Months Ended

September 30, 2020

September 30, 2019

Product Category

1 unchanged sentence

(000) Omitted

Metalized Balloons

Foil Balloons

Latex Balloons

1 unchanged sentence

Foil Balloons .

Revenues from the sale of foil balloons increased during the three months period from $2,857,000 ending June 30, 2019 compared to $3,372,000 during the three month period of 2020.

Revenues from the sale of foil balloons decreased during the six month period from $8,411,000 ending June 30, 2019 compared to $7,864,000 during the six month period of 2020.

Due to COVID-19 related issues, graduation season did not occur as it normally does.

This is the third strongest event in our annual sales period.

Anticipated delays by customers caused shipments to be lower during April and May.

As balloons were featured in many parties, including graduations, during shelter in place, June saw a significant increase in shipments.

On a related note, many smaller customers were forced to close for extended periods during shelter-in-place restrictions that began March 2020 and began to reopen during May and June 2020.

Revenues from the sale of foil balloons increased during the three months period from $3,681,000 ending September 30, 2019 compared to $4,516,000 during the three month period of 2020.

Revenues from the sale of foil balloons decreased during the nine month period from $13,325,000 ending September 30, 2019 compared to $12,380,000 during the nine month period of 2020 mainly due to decreased foil sales in our Mexican subsidiary.

Latex Balloons.

Revenues from the sale of latex balloons were $1,115,000 and $2,698,000 during the three and six month periods ended June 30, 2020, compared to $2,231,000 and $3,970,000 during the same periods of 2019.

Latex balloons encountered a similar COVID-19 constraint, as production activities were severely limited by the Mexican government.

Revenues from the sale of commercial films were $371,000 and $586,000 during the three and six month periods ended June 30, 2020, compared to $478,000 and $1,239,000 during the same periods of 2019.

Revenues from the sale of latex balloons were $1,014,000 and $3,712,000 during the three and nine month periods ended September 30, 2020, compared to $2,059,000 and $5,640,000 during the same periods of 2019.

Latex balloons encountered a COVID-19 constraint, as production activities were severely limited by the Mexican government.

Revenues from the sale of commercial films were $78,000 and $664,000 during the three and nine month periods ended September 30, 2020, compared to $236,000 and $1,475,000 during the same periods of 2019.

Our main customer had restructured their program in the first quarter both related to COVID-19 disruption and also the integration of a merger partner.

Other Revenues .

Revenues from the sale of other products were $887,000 and $1,665,000 during the three and six month periods ended June 30, 2020, compared to $3,636,000 and $4,262,000 during the same periods of 2019.

The revenues from the sale of other products during the first six months of 2020 include (i) sales of a line of “Candy Blossoms” and similar products consisting of candy and small inflated balloons sold in small containers and (ii) the sale of accessories and supply items related to balloon products.

Revenues from the sale of other products were $374,000 and $2,038,000 during the three and nine month periods ended September 30, 2020, compared to $9,000 and $3,571,000 during the same periods of 2019.

Revenues in 2019 include a discontinued line of organizing solutions that was fully deconsolidated in 2019.

The revenues from the sale of other products during the first nine months of 2020 include (i) sales of a line of “Candy Blossoms” and similar products consisting of candy and small inflated balloons sold in small containers and (ii) the sale of accessories and supply items related to balloon products.

Sales to a limited number of customers continue to represent a large percentage of our net sales.

The table below illustrates the impact on sales of our top three and ten customers for the six month periods ended June 30, 2020 and 2019.

Three Months Ende d June 30 ,

The table below illustrates the impact on sales of our top three and ten customers for the nine month periods ended September 30, 2020 and 2019.

Three Months Ended September 30,

Top 3 Customers

Top 10 Customers

Six Months Ende d June 30,

Nine Months Ended September 30,

Top 3 Customers

Top 10 Customers

During the six month period ended June 30, 2020, there was one customer whose purchases represented more than 10% of the Company’s consolidated net sales.

Sales to this customer for the six month period ended June 30, 2020 was $5,675,000, or 44% of consolidated net sales.

Sales to this customer for the six months ended June 30, 2019 was $6,630,000, or 37% of consolidated net sales.

As of June 30, 2020, the total amount owed to the Company by this customer was approximately $1,757,000, or 25% of the Company’s consolidated net accounts receivable.

The amount owed at June 30, 2019 by this customer was approximately $1,044,000, or 15% of the Company’s consolidated net accounts receivable.

During the nine month period ended September 30, 2020, there was one customer whose purchases represented more than 10% of the Company’s consolidated net sales.

Sales to this customer for the nine month period ended September 30, 2020 was $9,412,000 or 50% of consolidated net sales.

Sales to this customer for the nine months ended September 30, 2019 was $8,190,000, or 34% of consolidated net sales.

As of September 30, 2020, the total amount owed to the Company by this customer was approximately $1,725,000, or 33% of the Company’s consolidated net accounts receivable.

The amount owed at September 30, 2019 by this customer was approximately $831,000, or 16% of the Company’s consolidated net accounts receivable.

Cost of Sales .

During the three and six month periods ended June 30, 2020, the cost of sales was $5,136,000 and $10,722,000, compared to $9,135,000 and $15,858,000, respectively, for the same periods of 2019.

During the three and nine month periods ended September 30, 2020, the cost of sales was $5,720,000 and $16,442,000, compared to $6,285,000 and $20,926,000, respectively, for the same periods of 2019.

The reduction in cost of sales was largely due to the termination of the vacuum sealing product line, reduced presence in the form of discontinued subsidiaries, and a temporary reduction in orders related to COVID-19.

General and Administrative .

During the three and six month periods ended June 30, 2020, general and administrative expenses were $1,484,000 and $2,186,000 as compared to $1,419,000 and $2,784,000 respectively, for the same periods in 2019.

During the three and nine month periods ended September 30, 2020, general and administrative expenses were $1,067,000 and $3,254,000 as compared to $1,167,000 and $3,866,000 respectively, for the same periods in 2019.

Decrease is due mainly to headcount reductions.

Selling, Advertising and Marketing .

During the three and six month periods ended June 30, 2020, selling, advertising and marketing expenses were $108,000 and $288,000 as compared to $282,000 and $566,000, respectively, for the same periods in 2019.

During the three and nine month periods ended September 30, 2020, selling, advertising and marketing expenses were $101,000 and $384,000 as compared to $148,000 and $714,000, respectively, for the same periods in 2019.

Decrease is due mainly to headcount reductions.

Other Income (Expense) .

During the three and six month periods ended June 30, 2020, the Company incurred interest expense of $337,000 and $778,000 as compared to interest expense of $533,000 and $1,097,000 during the same periods of 2019.

During the three months ended June 30,2020 the Company recorded $800,000 of other income for the Payroll Protection Program, PPP, anticipated grant related to payroll, utility and rent payments.

For the three month and six month periods ended June 30, 2020, the Company had a foreign currency transaction gain/(loss) of $(30,000) and $(184,000) as compared to a gain/(loss) of $9,000 and $3,000 during the same periods of 2019.

During the three and nine month periods ended September 30, 2020, the Company incurred interest expense of $255,000 and $1,033,000 as compared to interest expense of $465,000 and $1,493,000 during the same periods of 2019.

During the three months ended September 30, 2020 the Company recorded $248,000 of other income for the Payroll Protection Program, PPP, anticipated grant related to payroll, utility and rent payments.

During the nine months ended September 30, 2020 the Company recorded $1,048,000 of other income for the Payroll Protection Program, PPP, anticipated grant related to payroll, utility and rent payments.

For the three month and nine month periods ended September 30, 2020, the Company had a foreign currency transaction gain/(loss) of $15,000 and $(169,000) as compared to a gain/(loss) of $(26,000) and $(27,000) during the same periods of 2019.

Financial Condition, Liquidity and Capital Resources

1 unchanged sentence

Operating Activities .

During the six months ended June 30, 2020, net cash used in operations was $228,000, compared to net cash provided by operations during the six months ended June 30, 2019 of $3,198,000.

Significant changes in working capital items during the six months ended June 30, 2020 included:

During the nine months ended September 30, 2020, net cash provided by operations was $995,000, compared to net cash provided by operations during the nine months ended September 30, 2019 of $4,172,000.

Significant changes in working capital items during the nine months ended September 30, 2020 included:

A decrease in accounts receivable of $2,916,000 compared to a decrease in accounts receivable of $2,776,000 in the same period of 2019.

A decrease in inventory of $2,315,000 compared to an increase in inventory of $1,435,000 in 2019.

A decrease in trade payables of $1,832,000 compared to an increase in trade payables of $1,998,000 in 2019.

An increase in accrued liabilities of $11,000 compared to a decrease in accrued liabilities of $594,000 in 2019.

An increase in trade payables of $852,000 compared to a decrease in trade payables of $1,893,000 in 2019.

A decrease in accrued liabilities of $331,000 compared to an increase in accrued liabilities of $167,000 in 2019.

In September 2020, the Company received $1.5 million from an unrelated third party as an advance on a proposed sale of Series B Redeemable Convertible Preferred Stock.

As of September 30, 2020, the Company was in the process of negotiating and finalizing the terms of the arrangement.

As the agreement was not finalized as of September 30, 2020, the $1.5 million advance is classified as Advance from Investor within liabilities on the accompanying balance sheet.

Investing Activity.

During the six months ended June 30, 2020, cash used in investing activity was $72,000, compared to cash used in investing activity for the same period of 2019 in the amount of $73,000.

During the nine months ended September 30, 2020, cash used in investing activity was $140,000, compared to cash used in investing activity for the same period of 2019 in the amount of $144,000.

Financing Activities .

During the six months ended June 30, 2020, cash used in financing activities was $949,000 compared to cash used in financing activities for the same period of 2019 in the amount of $3,726,000.

During the nine months ended September 30, 2020, cash used in financing activities was $2,237,000 compared to cash used in financing activities for the same period of 2019 in the amount of $4,546,000.

Financing activity consisted principally of changes in the balances of revolving and long-term debt.

During 2020, the Company has sold 542,660 shares of Series A Preferred to multiple investors for an aggregate purchase price of $5.4 million.

During 2020, the Company sold 542,660 shares of Series A Preferred to multiple investors for an aggregate purchase price of $5.4 million.

The Company has also received an advance of $1.5 million in from an investor for a Series B stock purchase that was not finalized as of September, 30 2020.

Liquidity and Capital Resources .

At June 30, 2020, the Company had cash balances of $104,000 compared to cash balances of $178,000 for the same period of 2019.

As of June 30, 2020, the Company was not in compliance with its credit facility, operating under a forbearance agreement.

For this reason, $1.7 million of long-term debt was reclassified as current debt as of June 30, 2020.

At September 30, 2020, the Company had cash balances of none compared to cash balances of $115,000 for the same period of 2019.

As of September 30, 2020, the Company was not in compliance with its credit facility, operating under a forbearance agreement.

For this reason, $1.4 million of long-term debt was reclassified as current debt as of September 30, 2020.

Failure to ultimately regain compliance with the terms of our credit agreement, or enter into a suitable replacement financing vehicle, could negatively impact our ability to carry on our business up to and including our ability to continue as a going concern.

5 unchanged sentences

The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results.

No material changes to such information have occurred during the three and six months ended June 30, 2020.

No material changes to such information have occurred during the three and nine months ended September 30, 2020.

Quantitative and Qualitative Disclosures Regarding Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis