What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-07 compared with 2026-05-13 · 106 added, 65 removed, 89 unchanged (66% of the section changed)

33 unchanged sentences

We created a new subsidiary, in part, for this purpose.

In recent periods, the U.S.

has imposed tariffs on certain goods imported from countries including China.

Existing and future trade tariffs, import duties and quotas

could also materially increase our costs of procuring the materials we use and disrupt the markets for the products we handle, which

in turn could have a material adverse effect on our financial position, results of operations and cash flows.

In recent periods, the

government has imposed tariffs on certain goods imported from countries including China.

Existing and future trade tariffs, import

duties and quotas could also materially increase our costs of procuring the materials we use and disrupt the markets for the products

we handle, which in turn could have a material adverse effect on our financial position, results of operations and cash flows.

Credit Facilities

of March 31, 2026 , the Company maintained senior secured credit facilities with Line Financial, consisting of a $7.0 million

revolving credit facility and a $0.7 million term loan.

of June 30, 2026, the Company maintained senior secured credit facilities with Line Financial, consisting of a $7.0 million revolving

credit facility and a $0.7 million term loan.

The facilities are secured by substantially all Company assets.

under the Revolving Credit Facility bear interest at the prime rate + 7.82% (14.57% as of March 31, 2026 while the term loan bears interest

under the Revolving Credit Facility bear interest at the prime rate + 7.82% (14.57% as of June 30, 2026) while the term loan bears interest

at the prime rate plus 1.45% and is repaid in monthly installments of approximately $15,000.

1 unchanged sentence

and operational covenants, including a minimum tangible net worth requirement of $4.0 million, with which the Company was in compliance

as of March 31, 2026.

as of June 30, 2026.

September 2025, the Company executed a Fifth Amendment extending maturity to April 30, 2027, and increasing the revolving commitment

2 unchanged sentences

and September 2026) and a $12,500 commitment fee associated with the expanded facility.

March 31, 2026, the company had $6.7 million outstanding on the revolving facility and $0.5 million on the term loan, with $0.3 million

June 30, 2026, the company had $4.6 million outstanding on the revolving facility and $0.45 million on the term loan, with $2.4 million

of remaining borrowing capacity.

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of Operations

Net sales for the three-month periods ended March 31, 2026 and 2025 were approximately $6.2 million and $4.8 million, respectively,

representing an increase of $1.4 million, or 28% year-over-year.

the three-month period ended March 31, 2026 and 2025, net sales by product category were as follows:

Net sales for the three-month periods ended June 30, 2026 and 2025 were approximately $3,900,000 and $5,457,000,

respectively, representing a decrease of $1,557,000 or 29% quarter-over-quarter.

The decrease is primarily attributable to the

timing of sales, as a greater portion of the Company’s spring products were shipped during the first quarter of 2026 rather

than the second quarter of 2026.

In addition, lower foil balloon volumes from a significant mass retail customer,

which adjusted its replenishment practices beginning in the second half of 2025, affected sales for both the three- and six-months

the three-month period ended June 30, 2026 and 2025, net sales by product category were as follows:

Three Months Ended

June 30, 2026

June 30, 2025

Product Category

(000) Omitted

Foil Balloons

Film Products

Revenues from the sale of foil balloons decreased during the three-month period ended March 31, 2026 to $3,487,000 compared

the six-month periods ended June 30, 2026 and 2025, net sales were $10,054,000 and $10,259,000 respectively, representing a decrease

of $205,000, or 2%.

the six-month periods ended June 30, 2026 and 2025, net sales by product category were as follows:

Six Months Ended

June 30, 2026

June 30, 2025

Product Category

(000) Omitted

Foil Balloons

Film Products

Revenues from the sale of foil balloons decreased during the three-month period ended June 30, 2026 to $2,618,000 compared

to $3,012,000 during the same period of 2025.

The decrease is related to the timing of order and shipments.

from the sale of foil balloons decreased during the six-month period ended June 30, 2026 to $6,105,000 compared to $7,245,000 during

the same period of 2025.

The decrease is related to the timing of orders and shipments.

In the second half of 2025

one of our large mass retail customers made some adjustments to their replenishment system due to a surplus in their supply chain.

Revenues from the sale of commercial films decreased during the three-month period ended March 31, 2026 to $39,000 compared to $427,000

during the same period of 2025.

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

of competitors.

Other revenues increased to $2,628,000 for the three-month period ended March 31, 2026, compared to $141,000 for the same

period in 2025.

The primary reason for the increase was the timing of spring product shipments, which occurred in first quarter of 2026

rather than the second quarter in 2025.

Other revenues during these periods primarily consisted of:

(i) sales of balloon-inspired gift

products, including candy and small inflated balloons packaged in small containers;

and (ii) sales 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.

table below illustrates the impact on sales of our top three and ten customers for the three-month periods ended March 31, 2026 and 2025.

Months Ended March 31,

In the second half of 2025 one of our large mass

retail customers made some adjustments to their replenishment system due to a surplus in their supply chain.

Revenues from the sale of commercial films were $208,000 and $247,000 during the three and six month periods ended June 30, 2026, compared

to $350,000 and $777,000 during the same periods of 2025.

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

and a significant number of competitors.

Revenues from the sale of other products were $1,074,000 and $3,702,000 during the three and six month periods ended June

30, 2026 compared to $2,095,000 and $2,237,000 during the same periods of 2025.

Other revenues during these periods primarily consisted

(i) sales of balloon-inspired gift products, including candy and small inflated balloons packaged in small containers;

and (ii) sales

of accessories and supply items related to balloon products.

The main reason for the fluctuation of the sales is due to timing of Valentine’s

Day related shipments, which occurred in December 2024 compared to Q1 2025 for the following year.

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 and six month periods ended June 30, 2026 and 2025.

Three Months Ended June 30,

Top 3 Customers

Top 10 Customers

the three-month period ended March 31, 2026, 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, 2026 and 2025, 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, 2026 were $2,378,000 and $2,969,000 or 39%

and 48 %, respectively of consolidated net sales.

Sales to these customers for the three months ended March 31, 2025

were $3,091,000 and $523,000, or 64% and 11%, respectively of consolidated net sales.

As of March 31, 2026, the total amount owed to

the Company by these customers was approximately $6,056,000, or 99% of the Company’s consolidated net accounts receivable.

During the three-month period ended March 31, 2026, the cost of sales was $5,138,000, compared to $3,936,000 for the same

period of 2025.

The gross margin for March 31, 2026 is 17% compared to 18% for the same period of 2025, the decrease in gross margin

is related to increase in component prices and raw materials due to escalating fuel prices.

Sales to these customers for the three and six months ended June 30, 2026 and 2025 are as follows:

Three Months Ended June 30,

% of Net Sales

Six Months Ended June 30,

% of Net Sales

of June 30, 2026, the total amounts owed to the Company by these customers were approximately $3,195,000 or 97% of the

Company’s consolidated accounts receivable.

The amounts owed at June 30, 2025 by these customers were $3,484,000 or 89% of the

Company’s consolidated accounts receivable.

This concentration also affects the Company’s liquidity:

accounts receivable from these customers constitute a substantial portion of the borrowing base under the Revolving Credit Facility,

and the loss of, or significant payment delays by, either customer would reduce availability thereunder.

During the three and six month periods ended June 30, 2026, the cost of sales was $3,362,000 and $8,502,000 compared to

$4,479,000 and $8,415,000 respectively for the same periods of 2025, with the change driven largely by changes in sales volume.

percentage of sales, cost of sales was 86% and 85% during the three and six months ended June 30, 2026, compared to 82% during the three

and six months ended June 30, 2025.

The increase in cost of sales is attributed to increased purchase costs due to inflationary

trends in the US market.

and Administrative .

During the three-month period ended March 31, 2026, general and administrative expenses were $924,000 as compared

to $839,000 for the same period in 2025.

The largest increase is attributed to increase in audit fee of $65k and increases in variable

rent expenses.

During the three and six month periods ended June 30, 2026, general and administrative expenses were $675,000

and $1,598,000 as compared to $754,000 and $1,593,000, respectively, for the same periods of 2025.

Advertising and Marketing :

During the three-month period ended March 31, 2026, selling, advertising and marketing expenses were $190,000

as compared to $205,000 for the same period in 2025.

During the three and six month periods ended June 30, 2026, selling, advertising and marketing expenses

were $183,000 and $373,000 as compared to $205,000 and $410,000, respectively, for the same period in 2025.

Selling, advertising and

marketing costs have decreased by $22,000 and $37,000.

Income (Expense) :

During the three-month period ended March 31, 2026, the Company incurred interest expense of $242,000 as compared

to interest expense of $237,000 during the same period of 2025.

During the three and six month periods ended June 30, 2026, the Company incurred interest expense of $225,000 and

$467,000 as compared to interest expense of $227,000 and $465,000, respectively, during the same periods of 2025.

Condition, Liquidity and Capital Resources

During the three months ended March 31, 2026, net cash provided by operations was $236,000, compared to net cash provided

in operations during the three months ended March 31, 2025 of $970,000.

changes in working capital items during the three months ended March 31, 2026 included:

increase in accounts receivable of $154,000 compared to a decrease in accounts receivable of $772,000 in the same period of 2025.

decrease in inventory of $732,000 compared to an increase in inventory of $175,000 in 2025.

increase in trade payables of $105,000 compared to an increase in trade payables of $334,000 in 2025.

decrease in prepaid expenses and other assets of $45,000 compared to a decrease of $63,000 in 2025.

decrease in accrued liabilities of $358,000 compared to an increase in accrued liabilities of $220,000 in 2025.

During the three months ended March 31, 2026, cash used in investing activity was $27,000, compared to cash used in investing

During the six months ended June 30, 2026, net cash provided by operations was $2,535,000 ,

compared to net cash provided by operations during the six months ended June 30, 2025 of $1,714,000.

changes in working capital items during the six months ended June 30, 2026 included:

decrease in accounts receivable of $2,660,000 compared to a decrease in accounts receivable of $1,608,000 in the same period of 2025.

decrease in inventory of $911,000 compared to a decrease in inventory of $313,000 in 2025.

decrease in trade payables of $195,000 compared to a decrease in trade payables of $104,000 in 2025.

increase in prepaid expenses and other assets of $68,000 compared to a decrease of $169,000 in 2025.

decrease in accrued liabilities of $323,000 compared with a decrease in accrued liabilities of $50,000 in 2025.

During the six months ended June 30, 2026, cash used in investing activity was $30,000, compared to cash used in investing

activity for the same period of 2025 in the amount of $42,000.

During the three months ended March 31, 2026, cash used in financing activities was $128,000 compared to cash used in

During the six months ended June 30, 2026, cash used in financing activities was $2,282,000 compared to cash used in

financing activities for the same period of 2025 in the amount of $1,874,000.

Financing activity during 2026 consisted principally of changes

in the balances of revolving and long-term debt.

Financing activity during 2026 consisted principally

of changes in the balances of revolving and principal repayments on term loan debt.

and Capital Resources .

March 31, 2026, the Company had cash balances of $178,000 compared to cash balances of $172,000 for the same period of 2025.

June 30, 2026, the Company had cash balances of $320,000 compared to cash balances of $18,000 for the same period of 2025.

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,

1 unchanged sentence

Management’s plans to continue as a going concern

include executing its business plan, continuing to focus on achieving profitable operations, and exploring alternative funding sources

include raising additional capital, including through a potential registered offering of equity securities, as well as borrowings, continuing to focus on attaining profitable operations, and exploring alternative funding sources

on an as needed basis.

8 unchanged sentences

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

Although the Company remained in compliance with all financial covenants under the Credit Agreement as of June 30,

2026, management concluded that substantial doubt exists because anticipated operating cash flows and liquidity remain dependent upon

obtaining additional financing or achieving sustained profitability.

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

12 unchanged sentences

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