What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-09-26 · 116 added, 93 removed, 152 unchanged (58% of the section changed)

33 unchanged sentences

to supply biodegradable and compostable materials to the marketplace that our developed by our partners in Asia.

We are in the process

of creating a new subsidiary for this purpose.

We created a new subsidiary,

in part, for this purpose.

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

9 unchanged sentences

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

on the Senior Facilities was set at the prime rate published from time to time published in the Wall Street Journal (8.0% as of September

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

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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.

change was intended by the parties to be financially neutral while easier to administer.

the interest rate on the Term Loan to Prime plus 1.45% per annum, with lender making a one-time additional advance of $206,000 to

reset the Term Loan to $731,000.

the renewal fee for this transaction to $50,000 from the formula described above.

the Term Loan asset monitoring fee to 0.385% per month.

Replace the asset monitoring

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

This change was intended by

the parties to be financially neutral while easier to administer.

Reduce the interest rate

on the Term Loan to Prime plus 1.45% per annum, with lender making a one-time additional advance of $206,000 to reset the Term Loan

Reduce the renewal fee

for this transaction to $50,000 from the formula described above.

Set the Term Loan asset

monitoring fee to 0.385% per month.

Senior Facilities require that the Company maintain Tangible Net Worth of at least $4,000,000 or greater (“Minimum Tangible Net

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

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

including as of September 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 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.

of September 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 $0.6 million and $0.7 million, respectively, and deferred financing costs of approximately

$24,000 and $40,000, respectively.

The balance of the Revolving Line of Credit as of September 30, 2024 and December 31, 2023 amounted

to $4,062,000 and $4,991,000, respectively.

Payable, Related Party

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of Operations

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:

For the three month periods ended September 30, 2024 and 2023, net sales were $2,540,000 and $1,923,000, respectively.

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

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

Product Category

1 unchanged sentence

Film Products

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

the nine month periods ended September 30, 2024 and 2023, net sales were $11,788,000 and $11,033,000, respectively.

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

September 30, 2024

September 30, 2023

Product Category

1 unchanged sentence

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.

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

Revenues from the sale of foil balloons increased during the three months period from $1,701,000 ending September 30, 2023

compared to $2,322,000 during the three month period of 2024.

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

period from $8,113,000 ending September 30, 2023 compared to $8,493,000 during the nine month period of 2024.

Order flow from our largest

customer was the cause of this increase.

Revenues from the sale of commercial films were $129,000 and $605,000 during the three and nine month periods ended September 30, 2024,

compared to $68,000 and $746,000 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.

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 $89,000 and $2,690,000 during the three and nine month periods ended

September 30, 2024, compared to $154,000 and $2,174,000 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.

The increase in Other Revenues during the nine months ended September 30, 2024 was driven by increased orders for

balloon-inspired gifts from the Company’s second largest customer.

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, 2024 and 2023.

Three Months Ended June 30,

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

Three Months Ended September 30,

Top 3 Customers

Top 10 Customers

Six Months Ended June 30,

Nine Months Ended September 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 and six months ended June 30, 2024 and 2023 are as follows:

the three and nine months ended September 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 and nine months ended September 30, 2024 and 2023 are

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

September 30, 2024

September 30, 2023

% of Net Sales

Nine Months Ended

September 30, 2024

September 30, 2023

% of Net Sales

of September 30, 2024, the total amounts owed to the Company by these customers were approximately $2,077,000 or 95% 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.

The amounts owed at September 30, 2023 by these customers were approximately $806,000 or 81% of

the Company’s consolidated net accounts receivable.

During the three and nine month period ended September 30, 2024, the cost of sales was $2,560,000 and $10,220,000, compared

to $1,903,000 and $9,372,000 respectively for the same periods of 2023, with the change driven largely by changes in sales volume.

a percentage of sales, cost of sales was 101% and 87% during the three and nine months ended September 30, 2024, compared to 99% and

85% during the three and nine months ended September 30, 2023.

During July 2024 we experienced a fire sprinkler failure in our warehouse

which forced us to dispose of $0.2 million of product.

Net of insurance proceeds, our inventory loss was approximately $40,000.

fourth quarter 2024 shipments are scheduled later in the quarter than in 2023, which reduced the amount of manufacturing cost capitalized

into the annual seasonal inventory build.

and Administrative .

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

During the three and nine month periods ended September 30, 2024, general and administrative expenses were $751,000

and $2,449,000 compared to $677,000 and $2,294,000, respectively, for the same periods in 2023.

1 unchanged sentence

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.

Of note are the one-time costs associated with reperforming audit procedures related to 2023 due to the Company’s

former auditor being suspended from practicing before the SEC during May 2024.

This resulted in $170,000 higher audit expenses during

the three months ended September 2024 as compared to the same period of 2023.

Advertising and Marketing .

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

During the three and nine month periods ended September 30, 2024, selling, advertising and marketing expenses

were $220,000 and $633,000 as compared to $172,000 and $474,000, respectively, for the same periods in 2023.

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Income (Expense) .

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.

During the three and nine month periods ended September 30, 2024, the Company incurred interest expense of $201,000

and $655,000 compared to interest expense of $124,000 and $421,000, 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.

The September 2023 refinance caused a shift from bank fees

to interest, with the net result of this process change being approximately even.

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 $895,000 was recognized during the 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, 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.

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.

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

During the nine months ended September 30, 2024, net cash provided by operations was $862,000, compared to net cash used

in operations during the nine months ended September 30, 2023 of $442,000.

changes in working capital items during the nine months ended September 30, 2024 included:

A decrease in accounts

receivable of $1,779,000 compared to a decrease in accounts receivable of $685,000 in the same period of 2023.

An increase in inventory

of $61,000 compared to an increase in inventory of $203,000 in 2023.

An increase in trade payables

of $651,000 compared to an increase in trade payables of $87,000 in 2023.

An increase in prepaid

expenses and other assets of $23,000 compared to an increase of $22,000 in 2023.

An increase in accrued

liabilities of $384,000 compared to a decrease in accrued liabilities of $496,000 in 2023.

During the nine months ended September 30, 2024, cash used in investing activity was $302,000, compared to cash used investing

activity for the same period of 2023 in the amount of $136,000.

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.

During the nine months ended September 30, 2024, cash used in financing activities was $1,476,000 compared to cash provided

by financing activities for the same period of 2023 in the amount of $496,000.

Uses of cash in financing activity during the nine months

ended September 30, 2024 consisted principally of changes in the balance of revolving debt of $0.9 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 nine

months ended September 30, 2024.

and Capital Resources .

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

September 30, 2024, the Company had cash balances of $5,000 compared to a cash balance of $64,000 as of September 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,

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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.

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

the 2023 audit report, the Company’s new auditors needed 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.

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

The Company issued these filings on September 25 and

September 26, 2024, respectfully.

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