What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-18 · 88 added, 215 removed, 92 unchanged (77% of the section changed)

25 unchanged sentences

Now the Company purchases latex balloons from an unrelated vendor and distributes

in the United States, primarily to those customers that prefer a combined solution for foil and latex balloons..

Substantially all of

our film products for packaging and custom product applications are sold to customers in the United States.

We market and sell our novelty

items, Candy Blossoms (balloons and candy arranged to look like a flower bouquet for gifting) and flexible containers for consumer use

primarily in the United States.

April 23, 2021, the Company entered into a Purchase and Sale Agreement (“PSA”) with an unaffiliated purchaser (the “Purchaser”)

pursuant to which the Company sold its facility in Lake Barrington, Illinois (the “Lake Barrington Facility”), in which our

headquarters office, production and warehouse space are located, to the Purchaser.

The sale price for the Lake Barrington Facility was

$3,500,000, consisting of $2,000,000 in cash and a promissory note with a principal amount of $1,500,000, due and payable on May 3, 2021

(the “Purchaser Promissory Note”).

Concurrently with the closing under the PSA, the Company and the Purchaser entered into

a lease agreement pursuant to which the Company agreed to lease the Lake Barrington Facility from the Purchaser for a period of ten years.

The annual base rent commences at $500,000 for the first year of the term and escalates annually to $652,386 during the last year of

the term of the lease.

Concurrently with the entry into the PSA and the Lease, the Company entered into a Consent, Forbearance and Amendment

6 to Revolving Credit, Term Loan and Security Agreement (the “Amendment Agreement”) with its then-lender PNC for itself

and for the other participant lenders thereunder (collectively, the “Prior Lender”).

Prior to entering into the Amendment

Agreement, PNC had notified the Company that various events of default had occurred under the Loan Agreement (the “Existing Defaults”)

and were continuing.

Pursuant to the Amendment Agreement, the Prior Lender consented to the transactions contemplated by the PSA and

the Lease, as required under the Loan Agreement.

As a condition to the Amendment Agreement, the Company agreed that the full $2,000,000

in cash proceeds from the sale of the Lake Barrington Facility would be applied to repay the $2,000,000 term loan owed to the Prior Lender

pursuant to the Loan Agreement.

The Company further agreed that $1,500,000 in proceeds from the Purchaser Promissory Note will be applied

to amounts due and owing to the Prior Lender under revolving credit advances made pursuant to the Loan Agreement (the “Revolving

Pursuant to the Amendment Agreement, the Prior Lender agreed to forbear from exercising its rights and remedies with respect

to the Existing Event of Defaults under the Loan Agreement for a period ending on the earlier of September 30, 2021, the occurrence of

a new event of default under the Loan Agreement, or the occurrence of a Termination Event (as defined therein).

Additionally, certain

additions and amendments to the Loan Agreement were set forth in the Amendment Agreement.

consideration for entering into the Loan Amendment, the Company agreed to pay the Prior Lender a Forbearance Fee of $1,000,000.

however, that, so long as no Event of Default under the Loan Agreement has occurred (including as a result of a failure of the Company

to pay down the Revolving Loans by $1,500,000 with the proceeds of the Purchaser Promissory Note, (i) if the Company consummates the

Equity Investment by June 30, 2021, the Forbearance Fee shall be reduced by $250,000, to $750,000, and (ii) if the Company causes all

of the obligations under the Loan Agreement to be paid in full, in cash, on or before September 30, 2021, the Forbearance Fee shall be

reduced by an additional $500,000, to $250,000.

All commitments were accomplished by the required dates, resulting in a final Forbearance

Fee of $250,000 paid during 2021.

in the United States, particularly to those customers that prefer a combined solution for foil and latex balloons..

Substantially all

of our film products for packaging and custom product applications are sold to customers in the United States.

We market and sell our

novelty items, Candy Blossoms (balloons and candy arranged to look like a flower bouquet for gifting) and flexible containers for consumer

use primarily in the United States.

of Significant Events

30, 2021 financing

5 unchanged sentences

Proceeds of loans borrowed under the Senior Facilities

were used to repay all amounts outstanding under the Company’s PNC Agreements and for the Company’s working capital.

were used to repay all amounts outstanding under the Company’s prior Agreements and for the Company’s working capital.

Senior Facilities are secured by substantially all assets of the Company.

on the Senior Facilities shall be the prime rate published from time to time published in the Wall Street Journal (6.25% as of October

on the Senior Facilities shall be the prime rate published from time to time published in the Wall Street Journal (8% as of March 31,

2023), plus 1.95% per annum, accruing daily and payable monthly.

7 unchanged sentences

the Company paid the Lender a loan fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon the execution of the Agreement.

During August 2022, these terms were modified to reduce the collateral monitoring fee to 2.77% and prevent the Company from repaying

the facility prior to September 2023.

During August 2022 the terms were modified to reduce the collateral monitoring fee to 2.77% and added a provision that barred the Company

from repaying the facility prior to September 2023.

Senior Facilities mature on September 30, 2023 and shall automatically be extended for successive periods of one year each, unless the

12 unchanged sentences

The Company believes it was in compliance with

this covenant during each relevant month, including as of September 30, 2022 and December 31, 2021.

this covenant during every relevant month, including as of December 31, 2022 and March 31, 2023.

Senior Facilities contain certain affirmative and negative covenants that limit the ability of the Company, among other things and subject

1 unchanged sentence

pay dividends and make other restricted payments, or make capital expenditures exceeding $1 million in the aggregate in any fiscal year.

of September 30, 2022 and December 31, 2021, the term loan balance amounted to $0.5 million and $0.6 million, respectively, which consisted

of the principal and interest payable balance of $0.6 million and $0.7 million and deferred financing costs of $0.1 million.

of the Revolving Line of Credit as of September 30, 2022 and December 31, 2021 amounted to $3.9 and $5.0 million, respectively.

Comparability

July 2019, management and the Board engaged in a review of CTI Balloons and CTI Europe and determined that they are not accretive to

the Company overall, add complexity to the Company’s structure and utilize resources.

Therefore, as of July 19, 2019, the Board

authorized management to divest these international subsidiaries.

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.

Accordingly, the Company has reported the results of

these International operations as discontinued operations in the Consolidated Statements of Comprehensive Income and presented the related

assets and liabilities as held-for-sale in the Consolidated Balance Sheets.

These changes have been applied for all periods presented.

The Company divested its CTI Balloons (United Kingdom) subsidiary in the fourth quarter 2019, its Ziploc product line in the first quarter

2020, and its CTI Europe (Germany) subsidiary in 2021.

Additionally, the Company sold its latex balloon manufacturer in Mexico (Flexo

Universal) during October 2021.

of March 31, 2023 and December 31, 2022, the term loan balance amounted to $0.5 million, which consisted of the principal and interest

payable balance of $0.6 million and deferred financing costs of $0.1 million.

The balance of the Revolving Line of Credit as of March

31, 2023 and December 31, 2022 amounted to $4.3 and $2.9 million, respectively.

of Operations

For the three month periods ended September 30, 2022 and 2021, net sales were $2,263,000 and $5,184,000, respectively.

the three-month period ended September 30, 2022 and 2021, net sales by product category were as follows:

For the three month periods ended March 31, 2023 and 2022, net sales were $5,051,000 and $5,797,000, respectively.

the three-month period ended March 31, 2023 and 2022, net sales by product category were as follows:

Three Months Ended

September 30, 2022

September 30, 2021

Product Category

Foil Balloons

Film Products

the nine month periods ended September 30, 2022 and 2021, net sales were $12,478,000 and $17,495,000, respectively.

the nine month period ended September 30, 2022 and 2021, net sales by product category were as follows:

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Product Category

1 unchanged sentence

Film Products

Revenues from the sale of foil balloons decreased during the three months period from $4,295,000 ending September 30, 2021

compared to $1,612,000 during the three month period of 2022.

Revenues from the sale of foil balloons decreased during the nine month

period from $13,793,000 ending September 30, 2021 compared to $8,118,000 during the nine month period of 2022.

An increase in the price

of helium during 2022 negatively impacted customers of most types of foil balloons.

This price increase was the result of both the broad

inflationary pressures and restrictions on trade with Russia, as we believe the latter supplies approximately 5% of the helium used in

the marketplace.

This combined with temporary individual supply issues created increased pricing in the market.

We also discontinued

certain products for which we were not able to secure adequate inflationary price increases.

The price of helium has reduced during recent

months and there are reasons to believe that it will continue to trend lower over the next several months.

This dynamic had a severe

impact on the sales of foil balloons, particularly for our largest customer.

Revenues from the sale of commercial films were $537,000 and $1,900,000 during the three and nine month periods ended September 30, 2022,

compared to $689,000 and $1,500,000 during the same periods of 2021.

Revenues from the sale of other products were $114,000 and $2,460,000 during the three and nine month periods ended September

30, 2022, compared to $200,000 and $2,202,000 during the same periods of 2021.

The revenues from the sale of other products during these

periods include (i) sales of a line of “Candy Blossoms” and similar products consisting of candy and small inflated balloons

sold in small containers, (ii) latex balloons, and (iii) the sale of accessories and supply items related to balloon products.

Revenues from the sale of foil balloons decreased during the three-month period from $3,832,000 ending March 31, 2022 compared

to $3,474,000 during the three month period of 2023.

While the price of helium has reduced from its 2022 peak, it remains elevated from

the beginning of 2022, which negatively impacts the demand for balloons primarily filled with helium.

Revenues from the sale of commercial films decreased, from $828,000 during the three-month period ended March 31, 2022, compared to $89,000

during the same period of 2023.

The Company’s largest customer increased its demand for the line that the Company supplies in 2022

and finished the year with inventory, negatively impacting early 2023 orders.

Revenues from the sale of other products were $1,112,000 during the three-month period ended March 31, 2022, compared to

$1,488,000 during the same period of 2023.

The revenues from the sale of other products during these periods 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.

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 three month periods ended September 30, 2022 and 2021.

Three Months Ended

September 30,

Top 3 Customers

Top 10 Customers

Nine Months Ended

September 30,

sales of our top three and ten customers for the three month periods ended March 31, 2023 and 2022.

Three Months Ended March 31,

Top 3 Customers

Top 10 Customers

the three and nine months ended September 30, 2022 and 2021, there were two customer whose purchases represented more than 10% of the

Company’s consolidated net sales.

Sales to these customers for the three and nine months ended September 30, 2022 and 2021 are

Three Months Ended

September 30, 2022

September 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

of September 30, 2022, the total amounts owed to the Company by these customers were approximately $679,000 or 45% of the Company’s

consolidated net accounts receivable.

The amounts owed at September 30, 2021 by these customers were approximately $1,451,000 or 38%

the three-month period ended March 31, 2023, there were two customers whose purchases represented more than 10% of the Company’s

consolidated net sales.

Sales to these customers for the three month period ended March 31, 2023 were $2,563,000 and $1,652,000, or 50%

and 32%, respectively, of consolidated net sales.

Sales to these customers for the three months ended March 31, 2022 were $2,502,000

and $1,347,000, or 43% and 23%, respectively of consolidated net sales.

As of March 31, 2023, the total amount owed to the Company by

these customers was approximately $962,000 and $2,245,000, or 29% and 67%, respectively of the Company’s consolidated net accounts

The amount owed at March 31, 2022 by these customers was approximately $696,000 and $1,669,000, or 20% and 48%, respectively,

of the Company’s consolidated net accounts receivable.

During the three and nine month period ended September 30, 2022, the cost of sales was $2,021,000 and $10,394,000, compared

to $4,528,000 and $14,559,000 respectively for the same period of 2021 due to lower sales volume.

As a percentage of sales, cost of sales

was 89% and 83% during the three and nine months ended September 30, 2022, compared to 87% and 83% during the three and nine months ended

September 30, 2021.

During the three month period ended March 31, 2023, the cost of sales was $3,924,000, compared to $4,758,000 for the same

period of 2022 due to lower sales volume and increased cost and mix efficiencies during 2023.

and Administrative .

During the three and nine month period ended September 30, 2022, general and administrative expenses were $896,000

and $2,731,000 compared to $833,000 and $2,730,000 respectively for the same periods in 2021.

During the three month period ended March 31, 2023, general and administrative expenses were $961,000 as compared

to $837,000 for the same period in 2022.

The Company incurred start up expenses with a new audit firm partner during 2023 as well as

transition cost inefficiencies.

Advertising and Marketing .

During the three and nine month period ended September 30, 2022, selling, advertising and marketing expenses

were $103,000 and $435,000 as compared to $104,000 and $350,000 respectively for the same periods in 2021.

The Company expanded its customer

outreach and engagement activities during 2022

on Sale of Assets .

On April 23, 2021, the Company sold its facility in Lake Barrington, Illinois and as a result of the sale recognized

a gain amounting to $3,357,000.

During the three month period ended March 31, 2023, selling, advertising and marketing expenses were $154,000

as compared to $221,000 for the same period in 2022.

The Company made small investments during 2022 that were not repeated during 2023.

Income (Expense) .

During the three and nine month period ended September 30, 2022, the Company incurred interest expense of $120,000

and $325,000 compared to interest expense of $89,000 and $437,000 respectively during the same period of 2021.

Interest expense decreased

due to the reduction of the Company’s senior debt facility, as well as the manner of charges from the Company’s lender during

the relevant period.

The lender during 2021 charged more interest, while the lender during 2022 charges lower interest and a monitoring

fee that is recorded in General and Administrative expenses.

During the three month period ended March 31, 2023, the Company incurred interest expense of $142,000 as compared

to interest expense of $96,000 during the same period of 2022.

The dramatic increase in interest rates during 2022 flowed through to

the Company’s Prime interest rate based borrowing structure.

Condition, Liquidity and Capital Resources

During the nine months ended September 30, 2022, net cash provided by operations was $1,187,000, compared to net cash

used by operations during the nine months ended September 30, 2021 of $1,204,000.

changes in working capital items during the nine months ended September 30, 2022 included:

A decrease in accounts

receivable of $2,032,000 compared to a decrease in accounts receivable of $169,000 in the same period of 2021.

An increase in inventory

of $1,286,000 compared to an increase in inventory of $401,000 in 2021.

A decrease in trade payables

of $54,000 compared to an decrease in trade payables of $714,000 in 2021.

A gain on sale of assets of $3,357,000 in 2021

An decrease in prepaid

expenses and other assets of $562,000 compared to an increase of $694,000 in 2021.

An increase in accrued

liabilities of $877,000 compared to an increase in accrued liabilities of $490,000 in 2021.

During the nine months ended September 30, 2022, cash used in investing activity was $121,000, compared to cash provided

by investing activity for the same period of 2021 in the amount of $3,406,000.

Investing activity consisted principally of the cash flows

from the sale and leaseback of our Lake Barrington, Illinois facility, as further described below under the heading “Liquidity

and Capital Resources”.

During the nine months ended September 30, 2022, cash used in financing activities was $1,031,000 compared to cash used

in financing activities for the same period of 2021 in the amount of $650,000.

Financing activity consisted principally of changes in

the balances of revolving and long-term debt, as well as additional investment during 2021.

During the nine months ended September 30, 2021, cash used by discontinued operations was $1,227,000 with related

exchange rate impact of a cash use of $12,000.

During the three months ended March 31, 2023, net cash used by operations was $1,369,000, compared to net cash provided

by operations during the three months ended March 31, 2022 of $2,000.

changes in working capital items during the three months ended March 31, 2023 included:

increase in accounts receivable of $1,726,000 compared to a decrease in accounts receivable of $125,000 in the same period of 2022.

decrease in inventory of $381,000 compared to an increase in inventory of $620,000 in 2022.

increase in trade payables of $35,000 compared to an increase in trade payables of $215,000 in 2022.

increase in prepaid expenses and other assets of $100,000 compared to a decrease of $339,000 in 2022.

decrease in accrued liabilities of $372,000 compared to a decrease in accrued liabilities of $165,000 in 2022.

During the three months ended March 31, 2023, cash used in investing activity was $56,000, compared to cash used in investing

activity for the same period of 2022 in the amount of $15,000.

During the three months ended March 31, 2023, cash provided by financing activities was $1,409,000 compared to cash provided

by financing activities for the same period of 2022 in the amount of $155,000.

Financing activity during 2023 consisted principally of

changes in the balances of revolving and long-term debt.

and Capital Resources .

September 30, 2022, the Company had cash balances of $101,000 compared to cash balances of $379,000 for the same period of 2021.

March 31, 2023, the Company had cash balances of $130,000 compared to cash balances of $208,000 for the same period of 2022.

ability of the Company to continue as a going concern is dependent on the Company executing its business plan and, if unable to do so,

5 unchanged sentences

any of its plans.

The COVID-19 pandemic, supply chain constraints and inflationary pressures have impacted the Company’s business

operations to some extent and is expected to continue to do so and, these impacts may include reduced access to capital.

of the Company to continue as a going concern is dependent upon its ability to successfully generate or otherwise secure other sources

of financing and attain profitable operations.

There is substantial doubt about the ability of the Company to continue as a going concern

for one year from the issuance of the accompanying consolidated financial statements.

The accompanying consolidated financial statements

do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The COVID-19 pandemic, supply chain constraints, inflationary pressures, and the cost and commercial availability of

helium have impacted the Company’s business operations to some extent and is expected to continue to do so and, these impacts may

include reduced access to capital.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully

generate or otherwise secure other sources of financing and attain profitable operations.

There is substantial doubt about the ability

of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements.

accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue

as a going concern.

Company’s primary sources of liquidity have traditionally been comprised of cash and cash equivalents as well as availability under

the Credit Agreement with prior lender PNC (see Note 4) until September 30, 2021, at which time we refinanced with a new facility from

Line Capital.

Through September 2021, we entered into a series of forbearance agreements with PNC related to compliance failures with

We believe that we have been in compliance with covenants since refinancing with Line Financial.

April 23, 2021, the Company entered into a Purchase and Sale Agreement (“PSA”) with an unaffiliated purchaser (the “Purchaser”)

pursuant to which the Company sold its facility in Lake Barrington, Illinois (the “Lake Barrington Facility”), in which our

headquarters office, production and warehouse space are located, to the Purchaser.

The sale price for the Lake Barrington Facility was

$3,500,000, consisting of $2,000,000 in cash and a promissory note with a principal amount of $1,500,000, due and payable on May 3, 2021

(the “Purchaser Promissory Note”).

Concurrently with the closing under the PSA, the Company and the Purchaser entered into

a lease agreement pursuant to which the Company agreed to lease the Lake Barrington Facility from the Purchaser for a period of ten years.

The annual base rent commenced at $500,000 for the first year of the term and escalates annually to $652,386 during the last year of

the term of the lease.

Concurrently with the entry into the PSA and the Lease, the Company entered into a Consent, Forbearance and Amendment

6 to Revolving Credit, Term Loan and Security Agreement (the “Amendment Agreement”) with PNC for itself and for the other

participant lenders thereunder (collectively, the “Prior Lender”).

Prior to entering into the Amendment Agreement, PNC had

notified the Company that various events of default had occurred under the Loan Agreement (the “Existing Defaults”) and were

Pursuant to the Amendment Agreement, the Prior Lender consented to the transactions contemplated by the PSA and the Lease,

as required under the Loan Agreement.

As a condition to the Amendment Agreement, the Company agreed that the full $2,000,000 in cash

proceeds from the sale of the Lake Barrington Facility would be applied to repay the $2,000,000 term loan owed to the Prior Lender pursuant

to the Loan Agreement.

The Company further agreed that $1,500,000 in proceeds from the Purchaser Promissory Note would be applied to

amounts due and owing to the Prior Lender under revolving credit advances made pursuant to the Loan Agreement (the “Revolving Loans”).

Pursuant to the Amendment Agreement, the Prior Lender agreed to forbear from exercising its rights and remedies with respect to the Existing

Event of Defaults under the Loan Agreement for a period ending on the earlier of September 30, 2021, the occurrence of a new event of

default under the Loan Agreement, or the occurrence of a Termination Event (as defined therein).

consideration for entering into the Loan Amendment, the Company agreed to pay the Lender a Forbearance Fee of $1,000,000.

Provided, however,

that, so long as no Event of Default under the Loan Agreement has occurred (including as a result of a failure of the Company to pay

down the Revolving Loans by $1,500,000 with the proceeds of the Purchaser Promissory Note, (i) if the Company consummates the Equity

Investment by June 30, 2021, the Forbearance Fee shall be reduced by $250,000, to $750,000, and (ii) if the Company caused all of the

obligations under the Loan Agreement to be paid in full, in cash, on or before September 30, 2021, the Forbearance Fee shall be reduced

by an additional $500,000, to $250,000.

As these requirements were met, the final Forbearance Fee was $250,000.

the Credit Agreement.

We believe that we have been in compliance with covenants since refinancing with Line Financial in September 2021.

That Credit Agreement expires per its terms on September 30, 2023, unless it is extended by the parties or replaced.

While the Company

expects to find an acceptable credit facility, there can be no assurance of success, and as such, might negatively impact the Company’s

ability to continue as a going concern.

the foil balloon product line, sales have historically been seasonal with approximately 40% occurring in the period from December through

6 unchanged sentences

No material changes to such information have occurred during

the three and nine months ended September 30, 2022.

the three months ended March 31, 2023.

Quantitative and Qualitative Disclosures Regarding Market Risk

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