What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-13 compared with 2023-08-11 · 128 added, 78 removed, 112 unchanged (65% of the section changed)

21 unchanged sentences

products, films for packaging and custom product applications, and flexible containers for packaging and consumer storage applications.

We produce all of our film products for packaging, container applications and most of our foil balloons at our plant in Lake Barrington,

We produce all of our film products for packaging, container applications and most of our foil balloons at our facility in Lake Barrington,

We used to produce our latex balloons and latex products at a majority-owned facility in Guadalajara, Mexico (Flexo Universal,

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flexible containers for consumer use primarily in the United States.

We have also begun to support and offer for sale compostable material

solutions intended for the North American market.

30, 2021 financing

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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

Company or the Lender gives the other party written notice of termination not less than 90 days prior to the end of such term or renewal

term, as applicable.

If the Senior Facilities are renewed, the Company shall pay the Lender a renewal fee of 1.25% of the Maximum Revolver

Amount and the Term Loan Amount upon each renewal on the anniversary of the Closing Date.

The Company has the option to prepay the Term

Loan Facility (together with all accrued but unpaid interest and a Term Loan Prepayment Fee (as defined the Agreement) in whole, but

not in part, upon not less than 60 days prior written notice to the Lender.

The September 2023 extension further modified the fee structure, eliminating the

Asset Monitoring Fee on the Revolving Credit Facility while increasing the interest rate to Prime plus 7.82% per annum, with the intent

of being cash flow neutral between the parties but more straightforward in administration.

The Term Loan maintains an asset monitoring

fee of 0.385% per month pursuant to the renewal agreement.

Senior Facilities matured on September 30, 2023 and were extended by agreement between the parties until September 30, 2025.

facility shall automatically be extended for successive periods of one year each, unless the Company or the Lender gives the other party

written notice of termination not less than 90 days prior to the end of such term or renewal term, as applicable.

If the Senior Facilities

are renewed, the Company shall pay the Lender a renewal fee of 1.25% of the Maximum Revolver Amount and the Term Loan Amount upon each

renewal on the anniversary of the Closing Date.

The Company has the option to prepay the Term Loan Facility (together with all accrued

but unpaid interest and a Term Loan Prepayment Fee (as defined the Agreement) in whole, but not in part, upon not less than 60 days prior

written notice to the Lender.

Senior Facilities require that the Company shall, commencing December 31, 2021, maintain Tangible Net Worth of at least $4,000,000 or

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The Company believes it was in compliance with

this covenant during every relevant month, including as of December 31, 2022 and June 30, 2023.

this covenant during every relevant month, including as of December 31, 2022 and September 30, 2023.

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

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

We are currently working on having a facility in place when the current facility expires on September 30, 2023.

of June 30, 2023 and December 31, 2022, the term loan balance amounted to $0.5 million, which consisted of the principal and interest

We have extended this facility with the lender on September 30, 2023.

of September 30, 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 less than $0.1 million.

The balance of the Revolving Line of Credit as

of June 30, 2023 and December 31, 2022 amounted to $4.3 and $2.9 million, respectively.

of September 30, 2023 and December 31, 2022 amounted to $3.4 and $2.9 million, respectively.

Pursuant to the extension, the Lender advanced

the Company $0.2 million and increased the Term Loan to $0.7 million, which will be reflected in the Company’s October 2023 financial

Pursuant to agreement between the parties, the Company paid a $50,000 renewal fee for the renewal, as opposed to the formula

described above.

of Operations

For the three month periods ended June 30, 2023 and 2022, net sales were $4,059,000 and $4,418,000, respectively.

the three-month period ended June 30, 2023 and 2022, net sales by product category were as follows:

the six month periods ended June 30, 2023 and 2022, net sales were $9,110,000 and $10,215,000, respectively.

the six month period ended June 30, 2023 and 2022, net sales by product category were as follows:

Revenues from the sale of foil balloons increased during the three months period from $2,674,000 ending June 30, 2022 compared

to $2,938,000 during the three month period of 2023.

Revenues from the sale of foil balloons decreased during the six month period from

$6,506,000 ending June 30, 2022 compared to $6,412,000 during the six month period of 2023.

An increase in the price of helium during

2022 negatively impacted customers of most types of foil balloons beginning the second quarter 2022.

This price increase was the result

of both the broad inflationary pressures and restrictions on trade with Russia, as we believe the latter supplied approximately 5% of

the helium used in the marketplace.

For the three month periods ended September 30, 2023 and 2022, net sales were $1,923,000 and $2,263,000, respectively.

the three-month period ended September 30, 2023 and 2022, net sales by product category were as follows:

Three Months Ended

September 30, 2023

September 30, 2022

Product Category

% of Net Sales

Foil Balloons

Film Products

the nine month periods ended September 30, 2023 and 2022, net sales were $11,330,000 and $12,478,000, respectively.

the nine month period ended September 30, 2023 and 2022, net sales by product category were as follows:

September 30, 2023

September 30, 2022

Product Category

% of Net Sales

Foil Balloons

Film Products

Revenues from the sale of foil balloons increased during the three months period from $1,612,000 ending September 30, 2022

compared to $1,701,000 during the three month period of 2023.

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

period from $8,118,000 ending September 30, 2022 compared to $8,113,000 during the nine month period of 2023.

An increase in the price

of helium during 2022 negatively impacted customers of most types of foil balloons beginning the second quarter 2022.

This price increase

was the result of both the broad inflationary pressures and restrictions on trade with Russia, as we believe the latter supplied approximately

5% of the helium used in the marketplace.

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

market price of helium remains elevated based on historical norms, but less elevated than during the middle of 2022.

The market price of helium remains elevated based on historical norms, but less elevated than during the middle of 2022.

We also discontinued

certain products during 2022 for which we were not able to secure adequate inflationary price increases.

Revenues from the sale of commercial films were $589,000 and $678,000 during the three and six month periods ended June 30, 2023, compared

to $535,000 and $1,363,000 during the same periods of 2022.

Order flow in this area has been historically inconsistent, impacted in part

by consolidation in the industry, including our customers, as well as a large number of competitors.

Revenues from the sale of other products were $532,000 and $2,020,000 during the three and six month periods ended June

Finally, our seasonality demonstrates

a low point in revenue during the third quarter with a high point during the fourth quarter.

Revenues from the sale of commercial films were $68,000 and $746,000 during the three and nine month periods ended September 30, 2023,

compared to $537,000 and $1,900,000 during the same periods of 2022.

The revenues from the sale of other products during

these periods include (i) sales of a line of balloon-inspired gift items 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.

The largest shipments of candy inspired gift items during 2023 occurred during March, while the same shipments during 2022 occurred during

In addition, shipments related to Valentine’s Day were complete as of December 2022, while in the prior year they went into

January 2022.

This timing impacts comparability in an area where total order flow has been increasing.

Order flow in this area has been historically inconsistent, impacted

in part by consolidation in the industry, including our customers, as well as a large number of competitors.

Revenues from the sale of other products were $154,000 and $2,174,000 during the three and nine month periods ended September

30, 2023, compared to $114,000 and $2,460,000 during the same periods of 2022.

The revenues from the sale of other products during these

periods include (i) sales of a line of balloon-inspired gift items and similar products consisting of candy and small inflated balloons

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

forward (iv) sales of compostable materials.

The largest shipments of candy inspired gift items during 2023 occurred during March, while

the same shipments during 2022 occurred during April.

In addition, shipments related to Valentine’s Day were complete as of December

2022, while in the prior year they went into January 2022.

This timing impacts comparability in an area where total order flow has been

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 June 30, 2023 and 2022.

Months Ended June 30,

the three and six months ended June 30, 2023 and 2022, 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 six months ended June 30, 2023 and 2022 are as follows:

of June 30, 2023, the total amounts owed to the Company by these customers were approximately $2,455,000 or 83% of the Company’s

sales of our top three and ten customers for the three month periods ended September 30, 2023 and 2022.

Three Months Ended September 30,

Top 3 Customers

Top 10 Customers

Nine Months Ended September 30,

Top 3 Customers

Top 10 Customers

the three and nine months ended September 30, 2023 and 2022, 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, 2023 and 2022 are

Three Months Ended

September 30, 2023

September 30, 2022

Nine Months Ended

September 30, 2023

September 30, 2022

of September 30, 2023, the total amounts owed to the Company by these customers were approximately $806,000 or 81% of the Company’s

consolidated net accounts receivable.

The amounts owed at June 30, 2022 by these customers were approximately $2,008,000 or 73% of the

Company’s consolidated net accounts receivable.

During the three and six month period ended June 30, 2023, the cost of sales was $3,545,000 and $7,469,000, compared to

$3,615,000 and $8,373,000 respectively for the same periods of 2022 due to lower sales volume.

As a percentage of sales, cost of sales

was 87% and 82% during the three and six months ended June 30, 2023, compared to 82% and 82% during the three and six months ended June

The amounts owed at September 30, 2022 by these customers were approximately $679,000 or 45% of

the Company’s consolidated net accounts receivable.

During the three and nine month period ended September 30, 2023, the cost of sales was $1,903,000 and $9,372,000, compared

to $2,021,000 and $10,394,000 respectively for the same periods of 2022 due to lower sales volume.

As a percentage of sales, cost of

sales was 85% during the nine months ended September 30, 2023, compared to 83% during the nine months ended September 30, 2022.

designs its cost structure around its seasonality, with lower revenue and spend during the third quarter and higher activity during the

fourth quarter.

With revenue for the three months ended September 30, 2023 reduced by $0.3 million from the three months ended September

30, 2022, there were greater inefficiencies and reduced fixed cost coverage during the 2023 quarter, resulting in the nine month period

difference noted above.

and Administrative .

During the three and six month period ended June 30, 2023, general and administrative expenses were $656,000

During the three and nine month period ended September 30, 2023, general and administrative expenses were $677,000

and $2,294,000 compared to $896,000 and $2,731,000, respectively, for the same periods in 2022.

The Company had higher than usual audit

fees related to a new audit firm onboarding during the first three months of 2023 that was not repeated during the second quarter of

When the price of helium increased during

2022, the Company established greater control over its expenses, resulting in lower personnel, professional, and ancillary service cost

during the nine months ended September 30, 2023 as compared to the same period of 2022.

Advertising and Marketing .

During the three and six month period ended June 30, 2023, selling, advertising and marketing expenses

During the three and nine month period ended September 30, 2023, selling, advertising and marketing expenses

were $172,000 and $474,000 as compared to $103,000 and $435,000, respectively, for the same periods in 2022.

Income (Expense) .

During the three and six month period ended June 30, 2023, the Company incurred interest expense of $155,000 and

$297,000 compared to interest expense of $109,000 and $205,000, respectively, during the same periods of 2022.

During the three and nine month period ended September 30, 2023, the Company incurred interest expense of $124,000

and $421,000 compared to interest expense of $120,000 and $325,000, respectively, during the same periods of 2022.

Interest expense increased

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Income related to the factored credit filings was recognized when the returns were processed

by the US Government during 2023.

As such, income of $300,000 and $895,000 was recognized during the three and six months ended June

30, 2023, respectively, for which cash was received during 2022.

by the US Government during the first six months of 2023.

As such, income of none and $895,000 was recognized during the three and nine

months ended September 30, 2023, respectively, for which cash was received during 2022.

Condition, Liquidity and Capital Resources

During the six months ended June 30, 2023, net cash used in operations was $1,361,000, compared to net cash provided

by operations during the six months ended June 30, 2022 of $303,000.

changes in working capital items during the six months ended June 30, 2023 included:

increase in accounts receivable of $1,341,000 compared to a decrease in accounts receivable of $707,000 in the same period of 2022.

decrease in inventory of $686,000 compared to an increase in inventory of $405,000 in 2022.

decrease in trade payables of $331,000 compared to an decrease in trade payables of $112,000 in 2022.

increase in prepaid expenses and other assets of $47,000 compared to a decrease of $333,000 in 2022.

decrease in accrued liabilities of $737,000 compared to a decrease in accrued liabilities of $87,000 in 2022.

During the six months ended June 30, 2023, cash used in investing activity was $94,000, compared to cash used investing

During the nine months ended September 30, 2023, net cash used in operations was $442,000, compared to net cash provided

by operations during the nine months ended September 30, 2022 of $1,187,000.

changes in working capital items during the nine months ended September 30, 2023 included:

decrease in accounts receivable of $685,000 compared to a decrease in accounts receivable of $2,032,000 in the same period of 2022.

increase in inventory of $203,000 compared to an increase in inventory of $1,286,000 in 2022.

increase in trade payables of $87,000 compared to an decrease in trade payables of $54,000 in 2022.

decrease in prepaid expenses and other assets of $22,000 compared to an increase of $562,000 in 2022.

decrease in accrued liabilities of $496,000 compared to an increase in accrued liabilities of $878,000 in 2022.

During the nine months ended September 30, 2023, cash used in investing activity was $136,000, compared to cash used investing

activity for the same period of 2022 in the amount of $121,000.

During the six months ended June 30, 2023, cash provided by financing activities was $1,409,000 compared to cash used

in financing activities for the same period of 2022 in the amount of $221,000.

During the nine months ended September 30, 2023, cash provided by financing activities was $496,000 compared to cash

used in financing activities for the same period of 2022 in the amount of $1,031,000.

and Capital Resources .

June 30, 2023, the Company had cash balances of $100,000 compared to cash balances of $54,000 for the same period of 2022.

September 30, 2023, the Company had cash balances of $64,000 compared to cash balances of $101,000 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,

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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 and is currently in negotiations for such, there can be no assurance of success, and as

such, might negatively impact the Company’s ability to continue as a going concern.

That Credit Agreement expired per its terms on September 30, 2023, and was replaced by a new agreement between the parties until September

The subordinated note is maturing in the near term.

While the Company expects to address the note maturity and find acceptable

credit as it requires, 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

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No material changes to such information have occurred during

the three and six months ended June 30, 2023.

the three and nine months ended September 30, 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