What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-09-26 compared with 2024-09-25 · 148 added, 120 removed, 97 unchanged (73% of the section changed)

35 unchanged sentences

of creating a new subsidiary for this purpose.

of Significant Events

30, 2021 financing, amended and extended to September 30, 2025

September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the

“Agreement”) with Line Financial (the “Lender”), which provides for a senior secured financing consisting of

a revolving credit facility (the “Revolving Credit Facility) in an aggregate principal amount of up to $6 million (the

“Maximum Revolver Amount”) and term loan facility (the “Term Loan Facility”) in an aggregate principal

amount of $731,250 (“Term Loan Amount” and, together with the Revolving Credit Facility, the “Senior

Facilities”).

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

The Company believes it has been

in compliance with the terms of these Senior Facilities since their inception in September 2021.

on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (8.5% as of March 31,

September 30, 2021 (the “Closing Date”), the Company entered into a loan and security agreement (the “Agreement”)

with Line Financial (the “Lender”), which provides for a senior secured financing consisting of a revolving credit facility

(the “Revolving Credit Facility) in an aggregate principal amount of up to $6 million (the “Maximum Revolver Amount”)

and term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $731,250 (“Term Loan Amount”

and, together with the Revolving Credit Facility, the “Senior Facilities”).

The Senior Facilities are secured by substantially

all assets of the Company.

This Agreement and the Senior Facilities were extended on similar terms during September 2023 with a termination

date of September 30, 2025.

The Company has been in compliance with the terms of these Senior Facilities since inception in September

on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (8.5% as of June

30, 2024), plus 1.95% per annum, accruing daily and payable monthly.

Interest shall be calculated on the basis of a 360-day year for the

actual number of days elapsed.

The Term Loan Facility shall be repaid by the Company to Lender in 48 equal monthly installments of principal

and interest, each in the amount of $15,000, commencing on November 1, 2021, and continuing on the first day of each month thereafter

until the Term Loan Maturity Date (as defined in the Agreement).

Also, the Company paid the Lender collateral monitoring fees of 4.62%

of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit Facility and the Term Loan.

Senior Facilities matured on September 30, 2023 and were extended with a maturity date of September 30, 2025.

The facility automatically extends 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.

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.

With this September 30, 2023

extension, the parties agreed changes in terms including:

Interest shall be calculated on the basis of a 360-day year for

the actual number of days elapsed.

The Term Loan Facility shall be repaid by the Company to Lender in 48 equal monthly installments of

principal and interest, each in the amount of $15,000, commencing on November 1, 2021, and continuing on the first day of each month

thereafter until the Term Loan Maturity Date (as defined in the Agreement).

Also, the Company paid the Lender collateral monitoring fees

of 4.62% of the eligible accounts receivable, inventory, and equipment supporting the Revolving Credit Facility and the Term Loan.

Senior Facilities matured on September 30, 2023 and were amended to extend the maturity date to September 30, 2025.

The facility automatically

extends 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

With the September 30, 2023 amendment, the parties agreed changes in terms including:

the asset monitoring fee on the Revolving Credit Facility with an increase in interest rate, to Prime plus 7.82% per annum.

10 unchanged sentences

The Company believes it was in compliance with this covenant for all relevant months,

including as of March 31, 2024 and December 31, 2023, respectively.

including as of June 30, 2024 and December 31, 2023, respectively.

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 $1,000,000 in the aggregate in any fiscal year.

of March 31, 2024 and December 31, 2023, the term loan balance amounted to $0.7 million, which consisted of the principal and interest

payable balance of $0.7 million and deferred financing costs of approximately $30,000.

The balance of the Revolving Line of Credit as

of March 31, 2024 and December 31, 2023 amounted to $5,556,000 and $4,991,000, respectively.

By virtue of the September 30, 2023 extension

above, the Company was advanced $206,000 and the Term Loan was reset to $731,000.

The Term Loan is repaid by approximately $15,000 per month, offset by related charges.

of January 1, 2019, the Company had a note payable to John H.

Schwan, Director and former Chairman of the Board, for $1.6 million, including

accrued interest.

This loan accrues interest, is due December 31, 2023, and is subordinate to the Senior Facilities.

During January 2019,

Schwan converted $600,000 of the note into approximately 181,000 shares of our common stock at the then market rate of $3.32 per

As a result of the conversion, the loan balance decreased to $1 million.

The loan and interest payable to Mr.

Schwan amounted

to $1.3 million as of December 31, 2023.

$1 million of this was paid to Mr.

of June 30, 2024 and December 31, 2023, the term loan balance amounted to $0.6 million and $0.7 million, respectively, which consisted

of the principal and interest payable balance of $0.7 million and deferred financing costs of approximately $30,000.

The balance of the

Revolving Line of Credit as of June 30, 2024 and December 31, 2023 amounted to $4,788,000 and $4,991,000, respectively.

Payable, Related Party

Company is party to a note payable to John H.

Schwan, Director and former Chairman of the Board, with a loan balance of $1.3 million

and interest rate of 6% as of December 31, 2023.

The Company repaid $1 million to Mr.

Schwan during January 2024.

The parties agreed to the payment

of the remaining $0.3 million at a future date to be determined.

The parties agreed

to the payment of the remaining $0.3 million at a future date to be determined.

This related party note payable is subordinate to the

Senior Facilities.

of Operations

For the three month periods ended March 31, 2024 and 2023, net sales were $4,894,000 and $5,051,000, respectively.

the three-month period ended March 31, 2024 and 2023, net sales by product category were as follows:

For the three month periods ended June 30, 2024 and 2023, net sales were $4,354,000 and $4,059,000, respectively.

the three-month period ended June 30, 2024 and 2023, net sales by product category were as follows:

Three Months Ended

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

Product Category

1 unchanged sentence

Film Products

Revenues from the sale of foil balloons decreased during the three-month period from $3,474,000 ending March 31, 2023 compared

the six month periods ended June 30, 2024 and 2023, net sales were $9,248,000 and $9,110,000, respectively.

the six month period ended June 30, 2024 and 2023, net sales by product category were as follows:

June 30, 2024

June 30, 2023

Product Category

Foil Balloons

Film Products

Revenues from the sale of foil balloons increased during the three months period from $2,938,000 ending June 30, 2023 compared

to $3,252,000 during the three month period of 2024.

The Company believes this decline is related to the timing of orders and shipments,

as open orders for foil balloons were $0.5 million higher as of March 31, 2024 as compared to March 31, 2023.

Revenues from the sale of commercial films increased, from $89,000 during the three-month period ended March 31, 2023, compared to $305,000

during the same period of 2024.

Sales in this area have been inconsistent due to a small number of customers and significant number of

Revenues from the sale of other products were $1,488,000 during the three-month period ended March 31, 2023, compared to

$1,670,000 during the same period of 2024.

The revenues from the sale of other products during these periods include (i) sales of a line

of Balloon Inspired Gifts 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 foil balloons decreased during the six month period from

$6,412,000 ending June 30, 2023 compared to $6,171,000 during the six month period of 2024.

We believe that our smaller customers are

managing their inventory levels more aggressively, negatively impacting order flow.

Revenues from the sale of commercial films were $171,000 and $476,000 during the three and six month periods ended June 30, 2024, compared

to $589,000 and $678,000 during the same periods of 2023.

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 $931,000 and $2,601,000 during the three and six month periods ended June

30, 2024, compared to $532,000 and $2,020,000 during the same periods of 2023.

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.

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 March 31, 2024 and 2023.

Three Months Ended March 31,

sales of our top three and ten customers for the three month periods ended June 30, 2024 and 2023.

Three Months Ended June 30,

Top 3 Customers

Top 10 Customers

the three-month period ended March 31, 2024, there were two customers whose purchases represented more than 10% of the Company’s

Six Months Ended June 30,

Top 3 Customers

Top 10 Customers

the three and six months ended June 30, 2024 and 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, 2024 were $2,226,000 and $1,710,000, or 46%

and 35%, respectively, of consolidated net sales.

Sales to these customers for the three months ended March 31, 2023 were $2,563,000

and $1,652,000, or 50% and 32%, respectively of consolidated net sales.

As of March 31, 2024, the total amount owed to the Company by

these customers was approximately $2,272,000 and $1,855,000, or 51% and 42%, respectively of the Company’s consolidated net accounts

The amount owed at March 31, 2023 by these customers was approximately $962,000 and $2,245,000, or 29% and 67%, respectively,

of the Company’s consolidated net accounts receivable.

During the three month period ended March 31, 2024, the cost of sales was $3,999,000, compared to $3,924,000 for the

same period of 2023.

Lower sales volume and mix inefficiencies, as well as unusual repair and maintenance expenses, impacted 2024

2023, with gross margin of 18% during the 2024 period as compared to 22% during the same period of 2023.

Sales to these customers for the three and six months ended June 30, 2024 and 2023 are as follows:

Three Months Ended

June 30, 2024

June 30, 2023

Six Months Ended

June 30, 2024

June 30, 2023

of June 30, 2024, the total amounts owed to the Company by these customers were approximately $3,232,000 or 94% of the Company’s

consolidated net accounts receivable.

The amounts owed at June 30, 2023 by these customers were approximately $2,455,000 or 83% of the

Company’s consolidated net accounts receivable.

During the three and six month period ended June 30, 2024, the cost of sales was $3,662,000 and $7,660,000, compared to

$3,545,000 and $7,469,000 respectively for the same periods of 2023, with the change driven largely by changes in sales volume.

percentage of sales, cost of sales was 84% and 83% during the three and six months ended June 30, 2024, compared to 87% and 82% during

the three and six months ended June 30, 2023.

and Administrative .

During the three month period ended March 31, 2024, general and administrative expenses were $1,040,000 as compared

to $961,000 for the same period in 2023.

The largest change was a $50,000 increase in the cost of professional services, particularly

the annual audit cost.

On April 1, 2024, the Company made a change with respect to its independent auditing firm, ending the relationship

with BF Borgers, CPA PC (BFB) and engaging Wolf and Company, PC.

On May 3, 2024, the Company became aware that BFB had agreed to be suspended

from appearing or practicing before the SEC.

Because of this, the Company may no longer use audit reports or consent from BFB in future

Without the 2023 audit report, the Company’s new auditors will need to perform procedures related to 2023 balances in order

to be able to perform an effective review of required 2024 filings, including the Form 10-Q for the period ended March 31, 2024.

this was completed, the Company was not able to issue filings during 2024.

This effort will also increase administrative expenses in 2024

related to audit services.

During the three and six month period ended June 30, 2024, general and administrative expenses were $640,000

and $1,698,000 compared to $656,000 and $1,617,000, respectively, for the same periods in 2023.

The Company had higher than usual audit

fees in both years.

Of note are the “re-audit” costs associated with 2023 due to the Company’s former auditor being

suspended from practicing before the SEC during May 2024.

Advertising and Marketing .

During the three month period ended March 31, 2024, selling, advertising and marketing expenses were $208,000

as compared to $154,000 for the same period in 2023.

During the three and six month period ended June 30, 2024, selling, advertising and marketing expenses

were $223,000 and $413,000 as compared to $148,000 and $302,000, respectively, for the same periods in 2023.

2023 marked a low point

in these expenses while 2024 inflected higher, including $30,000 in additional sales commissions based on product mix and the payroll

cost associated with new product design.

Income (Expense) .

During the three month period ended March 31, 2024, the Company incurred interest expense of $218,000 as compared

to interest expense of $142,000 during the same period of 2023.

Interest rates increased during 2023 and, despite expectations of reductions

during 2024, have not yet been reduced.

The Company also changed its borrowing structure to replace lender fees with interest payments

at approximately the same net payment levels.

During the three and six month period ended June 30, 2024, the Company incurred interest expense of $236,000 and

$454,000 compared to interest expense of $155,000 and $297,000, respectively, during the same periods of 2023.

Interest expense increased

as a result of market rate increases that remained elevated throughout 2024.

The Company applied for Employee Retention Tax Credits during

2021, most of which were factored during 2022 and cash received.

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.

Condition, Liquidity and Capital Resources

During the three months ended March 31, 2024, net cash used by operations was $767,000, compared to net cash used in

operations during the three months ended March 31, 2023 of $1,369,000.

changes in working capital items during the three months ended March 31, 2024 included:

increase in accounts receivable of $423,000 compared to an increase in accounts receivable of $1,726,000 in the same period of 2023.

During the six months ended June 30, 2024, net cash provided by operations was $108,000, compared to net cash used in

operations during the six months ended June 30, 2023 of $1,361,000.

changes in working capital items during the six months ended June 30, 2024 included:

decrease in accounts receivable of $545,000 compared to an increase in accounts receivable of $1,341,000 in the same period of 2023.

decrease in inventory of $347,000 compared to a decrease in inventory of $686,000 in 2023.

increase in trade payables of $47,000 compared to a decrease in trade payables of $35,000 in 2023.

decrease in trade payables of $70,000 compared to a decrease in trade payables of $331,000 in 2023.

increase in prepaid expenses and other assets of $21,000 compared to an increase of $47,000 in 2023.

decrease in accrued liabilities of $18,000 compared to a decrease in accrued liabilities of $372,000 in 2023.

During the three months ended March 31, 2024, cash used in investing activity was $154,000, compared to cash used in investing

increase in accrued liabilities of $49,000 compared to a decrease in accrued liabilities of $737,000 in 2023.

During the six months ended June 30, 2024, cash used in investing activity was $274,000, compared to cash used investing

activity for the same period of 2023 in the amount of $94,000.

During the three months ended March 31, 2024, cash provided by financing activities was $49,000 compared to cash provided

by financing activities for the same period of 2023 in the amount of $1,409,000.

Financing activity during 2024 consisted principally

of changes in the balances of revolving and long-term debt, along with issuance of convertible preferred stock.

During the period ended March 31, 2024, $0.5 million was received

for convertible preferred stock while $1.0 million of Notes Payable was repaid.

During the six months ended June 30, 2024, cash used in financing activities was $733,000 compared to cash provided by

financing activities for the same period of 2023 in the amount of $1,409,000.

Uses of cash in financing activity during the six months

ended June 30, 2024 consisted principally of changes in the balance of revolving debt of $0.2 million and a $1.0 million repayment of

the related party note payable.

$0.5 million of cash was provided by the issuances of convertible preferred stock during the six months

ended June 30, 2024.

and Capital Resources .

March 31, 2024, the Company had cash balances of $49,000 compared to cash balances of $130,000 for the same period of 2023.

June 30, 2024, the Company had cash balances of $22,000 compared to a cash balance of $921,000 as of June 30, 2023.

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,

16 unchanged sentences

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, 2025, unless it is extended by the parties or replaced.

While the Company

3 unchanged sentences

March of the succeeding year and 24% being generated in the period July through October in recent years.

Critical Accounting Estimates

The critical accounting estimates utilized by the Company in preparation of the accompanying financial statements are set forth in

Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, under the heading “Management’s Discussion

and Analysis of Financial Condition and Results of Operations”.

There have been no material changes to these policies since December 31, 2023.

Accounting Estimates

critical accounting estimates utilized by the Company in preparation of the accompanying financial statements are set forth in Part II,

Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, under the heading “Management’s

Discussion and Analysis of Financial Condition and Results of Operations”.

There have been no material changes to these policies

since December 31, 2023.

in and Disagreements with Accountants on Accounting and Financial Disclosure

April 1, 2024, the Company made a change with respect to its independent auditing firm, ending the relationship with BF Borgers, CPA

PC (BFB) and engaging Wolf & Company, P.C.

On May 3, 2024, the Company became aware that BFB had agreed to be suspended from appearing

or practicing before the SEC.

Because of this, the Company may no longer use audit reports or consent from BFB in future filings.

the 2023 audit report, the Company’s new auditors need to perform procedures related to 2023 balances in order to be able to perform

an effective review of required 2024 filings, including the Form 10-Q for the periods ended March 31, 2024 and June 30, 2024.

was completed, the Company was not able to issue filings during 2024.

The Nasdaq provided the Company until September 27, 2024 to file

its delinquent filings including this Form 10-Q for the period ended June 30, 2024.

Failure to file within the provided time would result

in the delisting of the Company’s shares from Nasdaq, subject to the opportunity to appeal the result to a Hearings Panel.

filing is the second of two addressing this requirement.

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